Part 5 - FEMA

FEMA and International Taxation 5.iii R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Subject Page I. Foreign Exchange Management Act, 1999 (1) Introduction 5.1 (2) Residential Status under FEMA 5.1 (3) Capital & Current Account Transactions 5.2 (4) Bank Accounts in India 5.5 (5) Investment in India 5.8 (6) Acquisition and Transfer of Immovable property in India 5.15 (7) Branch / Liaison / Project office in India 5.16 (8) Trade Transactions – Import & Export 5.18 (9) Borrowings from Non-Residents 5.22 (10) Overseas Direct Investments 5.34 (11) Liberalised Remittance Scheme (LRS) 5.45 (12) Cross Border Merger Regulations 5.46 (13) Acquisition and Transfer of Immovable property outside India 5.49 (14) Branch / Liaison / Project Office outside India 5.50 (15) Compounding & Contravention under FEMA 5.51 (16) Miscellaneous 5.52 II. Foreign Contribution (Regulation) Act, 2010 (1) Introduction 5.54 (2) Applicability 5.54 (3) Foreign Contribution 5.54 (4) Restrictions on accepting FC 5.54 (5) Restrictions on acceptance of foreign hospitality 5.55 (6) Registration of the association 5.55 (7) Accounts & Audit 5.55 (8) Total ban on acceptance of foreign contribution & hospitality 5.56 (9) Restriction on administrative expenses 5.56 (10) Speculative activity 5.57 (11) Transfer of FC to other registered or unregistered persons 5.57 (12) Restriction in the utilisation of foreign contribution 5.57 (13) Inspection & Seizure 5.57 (14) Penalty 5.57 (15) Declaration of receipts of foreign contribution 5.58 (16) Change of designated bank account, name, address, aim, objects or key members of the association 5.58 (17) All FCRA services online 5.58 (18) Registration to be suspended 5.59 (19) Surrender of Registration Certificate 5.59 FEMA and International Taxation Contents

FEMA and International Taxation 5.iv R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Subject Page International Taxation III. Taxation of Non-Residents 5.60 (1) Test of Residence 5.60 (2) Tax Incidence 5.66 (3) Investment income of a Non-residents 5.66 (4) Specific incomes of Non-residents 5.69 (5) Salary income of Non-resident during short stay in India 5.71 (6) Business Income of Non-resident 5.71 (7) Indirect Transfer of Shares 5.73 (8) Taxation of Royalty & Fees for Technical Services (FTS) received by Non-residents 5.74 (9) Provisions to promote International Financial Services Centres (IFSC) 5.75 (10) Double Taxation Relief – Section 90 / 90A 5.76 (11) Special provisions for computation of capital gains on shares & debentures of Indian companies 5.77 (12) Special provisions for NRIs – Chapter XIIA 5.77 (13) Mandatory quoting of PAN (other documents as may be prescribed) by non-resident to avoid tax withholding at higher rate 5.79 (14) Applicability of Section 115JB to Foreign Companies 5.80 (15) Disclosure by Resident Indian of overseas assets and authority to sign any overseas account and other financial interests 5.80 IV. Transfer Pricing 5.81 (1) Substantive Provisions 5.81 (2) Procedural Provisions 5.88 (3) Advance Pricing Agreement (APA) 5.90 (4) Penal Provisions 5.93 (5) Transfer Pricing Rules 5.94 V. Equalisation Levy 5.95 (1) Charge of Equalisation Levy 5.95 (2) Definitions 5.96 (3) General Exemption 5.96 (4) Collection and Recovery of Equalisation Levy 5.97 (5) Furnishing of statement 5.97 (6) Interest on delayed payment of Equalisation Levy 5.97 (7) Penalty for failure to deduct or pay Equalisation Levy 5.97 (8) Penalty for failure to furnish statement 5.97 VI. Form 15CA/15CB 5.98 (1) Rule 37BB 5.98 (2) Suggestive Check-list for issuing Form 15CB 5.99 (3) Consequences for non filing of Form 15CA / 15CB 5.100 (4) Revise or Cancel Form 15CA and Form 15CB 5.100 (5) Applicability of Section 206AA 5.101 VII. Multilateral Instrument – An Introduction 5.102 (1) Covered Tax Agreement 5.102 (2) Ratification of MLI 5.102 (3) Impact of MLI 5.103 (4) Mandatory Minimum Standard 5.103 (5) Reservation 5.105 (6) Optional Provision 5.105 VIII. Double Taxation Avoidance Agreements 5.106

Foreign Exchange Management Act, 1999 5.1 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication (1) Introduction The Foreign Exchange Management Act, 1999 (FEMA) deals with cross-border investments, foreign exchange transactions and transactions between residents and non-residents. It has come into force from June 1, 2000. The operation of FEMA is akin to any other commercial law. However as compared to most other commercial laws FEMA is one of the smallest, having only 49 Sections. If guidelines, rules etc. are followed, then the person can undertake most transactions without any approvals. If proposed transactions fall outside the guidelines, one will have to obtain necessary prior approvals. The consequence of any violation is a penalty and if the penalty is not paid within the specified time, then there can be prosecution. FEMA extends to the whole of India. It also applies to all branches, offices and agencies outside India, which are owned or controlled by a person resident in India, in this respect FEMA can be said to acquire extra-territorial jurisdiction. It is important to note that RBI/GOI issues various Notifications, Directions, Press Notes, Guidance, etc. from time-to-time to administer FEMA. However, in case of conflict between any of them, the relevant FEMA Notification will prevail. What FEMA tries to govern? Sr. No. Types of Asset / Transaction Owned or entered by A) Foreign Exchange/ Security/ Properties outside India Person Resident in India (PRI) B) Foreign Exchange/ Security/ Properties in India Person Resident Outside India (PRO) A Person includes: a. An individual I. Foreign Exchange Management Act, 1999 b. A Hindu Undivided Family (HUF) c. A Company d. A Firm e. An association of persons or body of individuals, whether incorporated or not f. Every artificial juridical person not falling in any of the above sub-clauses g. Any agency, office or branch owned or controlled by such person. (2) Residential Status under FEMA Resident: If an individual stays in India for more than 182 days during the preceding financial year, he will be treated as a person resident in India. There are a few exceptions as under: • If a person goes/stays outside India for (a) taking up employment, or (b) carrying on business or vocation, or (c) for any other purpose for an uncertain period; he will be treated as a person resident outside India (non-resident). (It has been clarified that students going abroad for further studies will be regarded as non-residents.) • If a person who is residing abroad comes to/stays in India only for (a) taking up employment, or (b) carrying on business or vocation, or (c) for any other purpose for an uncertain period; he will be treated as a person resident in India. However, there are differing views in such a case as to whether the condition of stay of 182 days in India during the previous year will continue to apply. The term financial year means a twelve-month period beginning from April 1 and ending on March 31 next year. Following persons (other than individuals) will be treated as persons resident in India: • Person or body corporate which is registered or incorporated in India.

FEMA and International Taxation 5.2 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication • An office, branch or agency in India, even if it is owned or controlled by a person resident outside India. • An office, branch or agency outside India, if it is owned or controlled by a person resident in India. The definition is however inadequate to define residential status of a firm, HUF, trust or any entity which does not have to be registered. Conversely, a Non-Resident means a person who is not a resident in India. (3) Capital & Current Account Transactions Capital Account Transaction means a transaction which: i. alters foreign assets and foreign liabilities (including contingent liabilities) of Indian residents. ii. alters Indian assets and Indian liabilities of non-residents. iii. is a specified transaction as mentioned in Section 6. Essentially this is an economic definition and not an accounting or legal definition. It is intended to cover cross-border investments, cross-border loans and transfer of wealth across borders. RBI has been empowered to regulate capital account transactions. Unless the transaction is permitted as per regulations, Foreign Exchange (FX) cannot be drawn for the same. Capital account transactions though liberalised to a great extent, continue to be regulated – by RBI in respect of transactions involving capital/ debt instruments and by the Government of India in respect of other transactions. Unless permitted by way of notifications and rules or specific approvals, transactions on capital account cannot be undertaken. Current Account Transaction means all transactions, which are not capital account transactions. Specifically, it includes: i. Business transactions between residents and non-residents. ii. Short-term banking and credit facilities in the ordinary course of business. iii. Payments towards interest on loans and by way of income from investments. iv. Payment of expenses of parents, spouse or children living abroad or expenses on their foreign travel, medical and education. v. Scholarships/Chairs, etc. Primarily there are no restrictions on current account transactions. A person may sell or draw foreign exchange freely for his current account transactions, except in a few cases where limits have been prescribed (Section 5). The Central Government has the power to regulate current account transactions. Unless the transaction is restricted, FX can be drawn for the same. Current Account Transactions: Unless the transaction falls within the below mentioned restrictions, FX can be drawn for the same without any limit. Residents are permitted to remit up to US $ 250,000 for any current and capital account purpose (except those transactions which are prohibited altogether). Special exemption from limit of USD 2,50,000 provided under Rule 7 w.r.t. payments made to make meet expenses through International Credit Cards (ICC) while travelling abroad has been removed by the Central Government on 16th May 2023. Hence, any payments made outside India through ICC would be included in the overall LRS limit of USD 2,50,000. See Table below for Current Account Transactions at a brief.

Foreign Exchange Management Act, 1999 5.3 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication The details of restrictions on Current Account Transactions are as follows: Payment / Withdrawal of FX which require prior approval of RBI Transactions which are prohibited Release of exchange exceeding the limits under LRS (presently US $ 250,000) in one financial year, for one or more private visits to any country (except Nepal and Bhutan). Drawal of forex for travel to Nepal & Bhutan Exchange facilities exceeding the limits under LRS for persons going abroad for employment. Transactions with person resident in Nepal & Bhutan Exchange facilities for emigration exceeding the limits mentioned under LRS or the amount prescribed by country of emigration. Remittance out of lottery winnings Release of foreign exchange, exceeding the limits under LRS to a person, irrespective of period of stay, for business travel/ attending a Conference/specialised training/ maintenance expenses of a patient going abroad for medical treatment / check-up abroad/ for accompanying as attendant to a patient going abroad for medical treatment/ check-up. Payment of commission on exports under Rupee State Credit Route, except commission up to 10% of invoice value on exports of tea and tobacco. Release of exchange for meeting expenses for medical treatment abroad exceeding the estimate from the doctor in India or hospital/ doctor abroad. However, an amount up to the limits under LRS or its equivalent can be released without insisting on any estimate from a hospital/doctor. Remittance for purchase of lottery tickets, banned / prescribed magazines, football pools, sweepstakes, etc. Remittance for maintenance of close relatives abroad, – Exceeding the net salary (after deduction of taxes, contributions and other deductions) of a person who is resident but not permanently resident in India and (a) is a citizen of a foreign state other than Pakistan or (b) is a citizen of India who is on deputation to the office or branch or subsidiary or joint venture in India of such foreign company. – Exceeding US $ 250,000 per financial year per recipient. Payment of commission on exports made towards equity investment in Joint Ventures/ Wholly Owned Subsidiaries abroad of Indian companies. Release of exchange for studies abroad exceeding the estimates from the institution abroad or the limits under LRS per academic year, whichever is higher. Remittance of income from racing / riding or any other hobby Remittances exceeding US $ 1million per project, for any consultancy services procured from outside India. Remittance of interest income on funds held in NRSR Scheme Account. Remittances exceeding US $ 10 million per project, consultancy services procured from outside India by Indian companies executing infrastructure projects. Remittance of dividend by any company to which the requirement of dividend balancing is applicable. Commission to agents abroad for sale of residential flats/ commercial plots in India, exceeding US $ 25,000 or 5% of the inward remittance (whichever is higher) per transaction. Payment related to “Call Back Services” of telephones.

FEMA and International Taxation 5.4 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Payment / Withdrawal of FX which require prior approval of RBI Transactions which are prohibited Donations by Indian corporates, exceeding 1% of the foreign exchange earnings during the previous 3 financial years or US $ 5 million, whichever is less, for creation of chairs in reputed educational institutes or donations to funds (not being an investment fund) promoted by educational institutes or donation to technical institution or body or association in the field of activity of the donor company. Remittance exceeding US $ 100,000 or 5% of the investment brought into India, whichever is higher, by an entity in India by way of reimbursement of pre-incorporation expenses in India The following payments will require prior approval from the Government of India, except where the payment is made from the RFC or RFC(D) or EEFC Account of the remitter: - Purpose of Remittance Approval to be obtained from 1. Cultural Tours Ministry of HRD (Department of Education and Culture) 2. Advertisement in foreign print media for the purpose other than promotion of tourism, foreign investments and international bidding (exceeding US $ 10,000) by a State Government or its PSU Ministry of Finance (Department of Economic Affairs) 3. Remittance of freight of vessel chartered by a PSU Ministry of Surface Transport (Chartering Wing) 4. Payment of import through ocean transport by a Government Department or a PSU on CIF basis Ministry of Surface Transport (Chartering Wing) 5. Multi-modal transport operators making remittance to their agents abroad Registration certificate from the Director General of Shipping 6. Remittance of hiring charges of Transponders (a) TV channels (b) Internet service providers Ministry of Information and Broadcasting Ministry of Communication and Information Technology 7. Remittance of container detention charges exceeding the rate prescribed by Director General of Shipping Ministry of Surface Transport (Director General of Shipping) 8. Remittance of prize money/sponsorship of sports activity abroad by a person other than International/National/ State Level Sports bodies, if the amount involved exceeds US $ 100,000 Ministry of HRD (Department of Youth Affairs & Sports) 9. Remittance for membership of P&I Club Ministry of Finance (Insurance Division)

Foreign Exchange Management Act, 1999 5.5 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication (4) Bank Accounts in India Non-residents have been allowed to maintain Bank accounts in India, both in INR and foreign currency. There are basically 3 types of accounts that can be maintained in India by a Person Resident outside India: • Non-Resident (Ordinary) Account – NRO A/c • Non-Resident (External) Rupee Account – NRE A/c • Non-Resident (Foreign Currency) Account – FCNR A/c Particulars NRO A/c NRE A/c FCNR A/c Who can open an account Any person resident outside India (Individuals/ Entities of Bangladesh / Pakistan nationality/ ownership require RBI approval) NRIs & PIOs (Individuals/ entities of Bangladesh / Pakistan nationality/ ownership require RBI approval) NRIs & PIOs (Individuals/ entities of Bangladesh/ Pakistan nationality/ ownership require RBI approval) Currency INR INR Permissible Foreign Currency Repatriable/ NonRepatriable Non-Repatriable (Except current income and by NRI/PIO under USD 1 million per F.Y. scheme) Repatriable Repatriable Types of account Current, Savings, Recurring or Fixed Deposit Accounts Current, Savings, Recurring or Fixed Deposit Accounts Term Deposits Joint accounts Jointly with residents on ‘former or survivor’ basis. NRIs and/or PIOs may hold NRO accounts jointly with other NRIs and/or PIOs. In names of two or more NRI/ PIOs or with resident relative(s) on “former or survivor” basis. In names of two or more NRI/PIOs or with resident relative(s) on “former or survivor” basis. Major Permissible Debits Local rupee payments, Transfer to other NRO A/c, remittance outside India of current income in India (net of taxes) Local disbursements, remittance outside India, transfer to other NRE/ FCNR account and Investment in India Local disbursements, remittance outside India, transfer to other NRE/ FCNR account and investment in India Major Permissible Credits Remittance in permitted foreign currency, Deposit by Account holder during temporary visit to India, Transfer from other NRO A/c, dues in India of Account Holder, Rupee loans/gift from resident relative under LRS etc. Remittance in permitted foreign currency, proceeds of foreign currency/bank notes tendered during temporary visit to India, transfer from other NRE / FCNR account, Current Income, interest on bank balances & investments. Remittance in permitted foreign currency, proceeds of foreign currency/bank notes tendered during temporary visit to India, transfer from other NRE/ FCNR account, current income, interest on bank balances & investments.

FEMA and International Taxation 5.6 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Particulars NRO A/c NRE A/c FCNR A/c Taxability of Interest Taxable Non-Taxable Non-Taxable Even residents have been allowed to maintain foreign currency accounts in India as under: i. EEFC Account A person is permitted to credit the undermentioned amounts out of his foreign exchange earnings to his Exchange Earners Foreign Currency (EEFC) Account: Entity or person Limit in % 1. Exporter (in accordance with FEM Export of Goods and Services Regulations, 2015 100 2. Individual professionals ** 100 3. 100% EOU Unit in EPZ/STP/ EHTP 100 4. Any other person 100 ** Professionals mean Director on Board of overseas company; Scientist/Professor in Indian University/Institution; Economist/ Lawyer/ Doctor/Architect/ Engineer/Artist/Cost/Chartered Accountant/ Any other person rendering professional services in his individual capacity, as may be specified by the Reserve Bank from time-to-time. Professional earnings including director’s fees, consultancy fees, lecture fees, honorarium and similar other earnings received by a professional by rendering services in his individual capacity. However, amounts received to meet specific obligations of the account holder cannot be credited (e.g., equity investment from a nonresident investor). The balances do not earn any interest. These funds can be used for several current account purposes. For many transactions, where there are restrictions under the current account rules, funds in EEFC account can be used without restrictions. However, EEFC account holders are permitted to purchase foreign exchange only after utilising fully the available balances in the EEFC accounts. Individuals can open EEFC account jointly with any of their ‘close relative’ on ‘former or survivor basis’ but the joint relative cannot operate the account. Units in SEZ are permitted to open, hold and maintain a Foreign Currency Account with an authorised dealer in India. ii. Resident Foreign Currency (Domestic) Account – RFC (D) A/c A person resident in India can open, hold and maintain a Resident Foreign Currency (Domestic) Account and credit the account with foreign exchange in the form of currency notes, bank notes and travellers cheques from the following sources: i. Payment/ service/ gift/ honorarium received while on visit abroad or from a non-resident who is on a visit to India ii. Unspent amount of foreign exchange acquired from AD for travel abroad iii. Amount received as Gift from close relative iv. Earning through export of goods/ services, royalty v. Disinvestment proceed on conversion of shares into ADR/ GDR vi. Proceeds of insurance policies settled in foreign currency that is issued by Insurance Companies in India. iii. Resident Foreign Currency Account – RFC A/c Resident Indians can also open RFC account. This account is different from RFC (D) account. This account is primarily for non-residents who

Foreign Exchange Management Act, 1999 5.7 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication return to India. In RFC A/c., following items can be deposited: i. Pension or any other superannuation or other monetary benefits from employer outside India. ii. Amount received on conversion of the assets if those assets were acquired when such person was a non-resident. iii. Amount received as gift or inheritance from a person who was a non-resident and has become a resident. iv. Proceeds of insurance policies settled in foreign currency that is issued by Insurance Companies in India. There are no restrictions on use of funds. They can be used for meeting expenses and making investments abroad. RFC account can be maintained in the form of current or savings or term deposit accounts. Other Foreign Currency Accounts by Specific Persons Any passenger bringing in foreign exchange on his arrival in India in the form of currency notes, bank notes or travellers cheques exceeding US $ 10,000 or its equivalent and / or the value of foreign currency notes exceeding US $ 5,000 or its equivalent is required to file a declaration in Form CDF with the Custom Authorities. A person resident in India is permitted to carry only ` 25,000/- during his visit abroad (except Nepal and Bhutan). Temporary Foreign Currency Accounts in India Organisers of International Seminars, Conferences, Conventions, etc., who have been permitted by the concerned Administrative Ministry of the Government of India to hold such seminars, etc. are permitted to open temporary foreign currency accounts in India. The account is to be operated for receipt of delegate fees from abroad and payment of expenses including payment to special invitees from abroad. The said account has to be closed immediately after the conference/event is over.

FEMA and International Taxation 5.8 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication By non-residents, (5) Investment in India Foreign Investment in India • Foreign Direct Investment The Industrial Policy, Foreign Exchange Management (Non-Debt Instrument) Rules (2019) and Mode of Payment and Reporting of NonDebt Instruments Regulations, 2019 governs the Foreign Direct Investment in India. Both Non-Debt Instrument Rules and Industrial Policy (including consolidated FDI Policy) – should be read together to have a full picture. Sectoral limits for Foreign Direct Investments and Investments by NRIs are almost at par excepting the sector of Housing and Real Estate Development, and Domestic Airlines. Various avenues and policy for foreign investment are covered in brief. For FDI purposes an NRI means an individual resident outside India who is a citizen of India. Investment is generally allowed in an Indian company, which is engaged in any business, except prohibited sectors. Branches, liaison offices and project offices can be opened for limited purposes. In SEZs, non-residents can invest as a branch/unit, Joint Venture or a Wholly Owned Subsidiary on automatic basis. Investment in a proprietorship, partnership or Association of Persons, is subject to RBI permission in certain cases. Investment can be made by an incorporated entity, or individuals. Unincorporated entities cannot invest. However, citizens and incorporated entities of a country which shares land border with India (i.e. China, Pakistan, Bangladesh, Bhutan, Nepal, Myanmar and Afghanistan) or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, are permitted to invest under the FDI scheme only after obtaining prior Government approval. Further, citizens and incorporated entities of Pakistan are prohibited to invest in defence, space, atomic energy and sectors/activities prohibited for foreign investment. Also, any transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership by

Foreign Exchange Management Act, 1999 5.9 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication an entity/citizen as mentioned above, then such subsequent change will require prior Government approval. Eligibility Person Resident Outside India Eligible Instruments Equity Instruments which is defined as Equity Shares, Convertible Debentures, Convertible Preference Shares, Partly paid Equity Shares and Share Warrants issued by an Indian Company subject to Company’s Act, 2013 & SEBI guidelines Lock in Period in case of optionality clause One year from the date of investment or as per prescribed FDI guidelines, whichever is higher Modes of Investment Issuance of fresh Shares or Transfer of Existing Shares When investment in India can be made in ANY sector without any approval from any authority, this is known as the “Automatic route”. For a small list of sectors or investment exceeding permissible sectoral caps, which are not under the “automatic route”, a specific approval should be taken from Government of India/Department for Promotion of Industry and Internal Trade (DPIIT) through the Foreign Investment Facilitation Portal (FIFP). FDI is prohibited in the following activities/ sectors: a. Lottery business including Government/ private lottery, online lotteries, etc. b. Gambling and betting including casinos etc. c. Chit funds d. Nidhi company e. Trading in Transferable Development Rights (TDRs) f. Real Estate Business or Construction of Farm Houses (For FDI Regulations - “real estate business” shall not include development of townships, construction of residential/commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014. Further, earning of rent/income on lease of the property, not amounting to transfer, will not be considered as real estate business) 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., Atomic Energy. i. Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and gambling and betting activities. FDI is also permitted in LLPs • Entry Route – Automatic route in LLP’s operating in sectors/ activities where 100% FDI is allowed through Automatic Route and there are no FDI linked performance conditions. • Capital Contribution - An LLP can receive foreign capital contribution only by cash consideration, received by inward remittance, through normal banking channels or by debit to NRE/FCNR account of the person concerned, such account being maintained with an authorised dealer/ bank. • Investment in LLPs by Foreign Portfolio Investors (FPIs) and Foreign Venture Capital Investors (FVCIs) is not permitted. • LLPs are not permitted to avail External Commercial Borrowings (ECBs). FDI in LLP is subject to compliance of the LLP Act, 2008.

FEMA and International Taxation 5.10 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Reporting Requirements All reportings for various types of Foreign Investments in India are required to be done through the Single Master Form (SMF) through the Foreign Investment Reporting and Management System (FIRMS) portal. This includes the following - • FC-GPR – which a company submits to RBI for reporting the issue of eligible instruments to the overseas investor. • FC-TRS – which the non-resident has to submit at the time of transfer of shares/ debentures between a resident and a nonresident. • DI – which the downstream investment company has to submit at the time of indirect foreign investment or downstream investment. • InVI – which the investment vehicle receiving investment has to submit at the time of issue of units to overseas investors. • LLP - I – which the LLP has to submit for reporting receipt of foreign direct investment by way of capital contribution and profit share. • LLP - II – which the LLP has to submit for reporting disinvestment or transfer of capital contribution and profit share. • ESOP – which the company has to submit for issue of ESOPs or Sweat Equity Shares or Shares against exercise of ESOP to employee outside India. • CN – which the company has to submit for issue or transfer of convertible notes1 to overseas investors. • DRR – which the company has to submit for issue or transfer of depository receipts to overseas investors. The forms are required to be filed online on the FIRMS portal of RBI. The certificates and other documents to be filed have to be scanned and uploaded along with the same. In cases where pricing guidelines apply, a Valuation report issued by a Chartered Accountant or a SEBI registered Merchant Banker is required to be submitted. User Manual on the FIRMS portal provides a step by step explanation of the process to be followed and is updated regularly. Further, every year before July 15, Annual return on Foreign Liabilities and Assets has to be filed directly with the Director, Balance of Payment Statistical Division, RBI detailing all investments by way of direct/portfolio/re-invested earnings/ others in the Indian company during the preceding financial year through the Foreign Liabilities and Assets Information Reporting (FLAIR) system. The Late Submission Fee (LSF) was introduced for reporting delays in Foreign Investment with effect from November 07, 2017. The LSF matrix was updated w.e.f. September 30, 2022 viz. as follows: Sr. No. Type of Reporting delays LSF Amount (INR) 1. FCGPR (B), FLA Returns 7,500 2. FC-GPR, FCTRS, Form ESOP, Form LLP(I), Form LLP(II), Form CN, Form DI, Form InVi [7,500 + (0.025% x A x n)] Notes: a. “n” is the number of years of delay in submission rounded-upwards to the nearest month and expressed up to 2 decimal points. b. “A” is the amount involved in the delayed reporting. 1. ‘Convertible Note’ is an instrument issued by a start-up company evidencing receipt of money initially as debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of such start-up company, within a period not exceeding ten years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument.

Foreign Exchange Management Act, 1999 5.11 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication c. LSF amount is per return. However, for any number of Form ECB-2 returns, delayed submission for each LRN will be treated as one instance for the fixed component. Further, ‘A’ for any ECB-2 return will be the gross inflow or outflow (including interest and other charges), whichever is more. d. Maximum LSF amount will be limited to 100 per cent of ‘A’ and will be rounded upwards to the nearest hundred. Foreign Portfolio Investor (FPIs) FPIs such as Pension Funds, Investment Trusts, Asset Management Companies, etc., who have obtained registration from SEBI, are permitted to invest on full repatriation basis under FDI Policy as well as under in the Indian Primary & Secondary Stock Markets (including OTCEI) including in unlisted, dated Government Securities, Treasury Bills, ‘to be listed’ debt securities, Units of Domestic Mutual Funds and commercial paper without any lock-in period. Limits on investments are: a. The total holdings of all FPIs in any Company will be subject to its sectoral foreign investment cap. However, the company has an option to limit it to a lower threshold. b. A FPI, having 10% or more than 10% of total paid-up capital on a fully diluted basis or paid up value of each series of debentures or preference shares or share warrants, the total investment made by the FPI shall be re-classified as FDI subject to the conditions as specified by SEBI and RBI. c. A FPI may trade in all exchange trade derivative contracts approved by SEBI from time-to-time subject to the limits as prescribed in by SEBI. An FPI may undertake short selling as well as lending and borrowing of securities as permitted by RBI and SEBI subject to certain conditions. • Foreign Venture Capital Investor (FVCI) Foreign Venture Capital Investors (FVCIs) can invest in securities, issued by an Indian Company engaged in sectors which are permitted for the same and even those securities which are not listed on recognised stock exchange at the time of issue of such securities. They can also invest in securities issued by a Start-up enterprise irrespective of their sector/activity. A registered FVCI may, through the SEBI, apply to the Reserve Bank for permission to invest in a VCF or in a scheme floated by such VCFs. The domestic VCF must however be registered with SEBI. The registered FVCI may purchase equity/ equity linked instruments/ debt/ debt instruments, debentures of a VCF through Initial Public Offer or Private Placement or in units of schemes/funds set up by a VCF. The amount of consideration for investment in VCFs shall be paid out of inward remittance from abroad through normal banking channels or a Special Non-Resident Rupee (SNRR) account maintained in accordance with the FEM (Deposit) Regulations, 2016. There is no limit on investments, but if the investment is in equity instruments then the sectoral caps, entry routes and attendant conditions shall apply. Form FC-GPR – Part ‘A’ has to be filed with RBI, through the company’s bankers, within 30 days of allotment of securities. Form FC-TRS will be applicable in case of transfer of shares between a resident and nonresident. • International Financial Institutions Multilateral Development Banks, which are specifically permitted by the Government to float rupee bonds in India, are permitted to purchase Government dated securities. • Investments by Non-resident Employees of Indian Companies, etc. An Indian Company can issue shares up to 5% of its paid-up capital to its employees or employees of its overseas joint venture or wholly owned subsidiary resident outside India, under a SEBI

FEMA and International Taxation 5.12 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication approved Employees Stock Options Scheme. These shares cannot however be issued to employees who are citizens of Pakistan/Bangladesh without Government Approval. • Investments by NRIs / PIOs NRIs and Overseas Citizen of India (OCI) can invest in shares and convertible debentures of Indian companies. Foreign investment policy for foreigners applies equally to NRI for repatriable investment. There are only two sectors – Real Estate Development and Domestic Airlines – where investment facilities are different for NRIs and foreigners. Investment by NRIs Repatriation Basis Non-Repatriation Basis Permitted Instruments All instruments permitted under FDI for other non-residents, Government dated Securities (other than Bearer Securities), Treasury bills, Units of domestic Mutual Funds, bonds issued by PSUs in India, shares in Public sector enterprise disinvested by GOI All the instruments permitted under FDI for other non-residents, Government Securities (other than Bearer Securities), Treasury Bills, Units of Domestic Mutual Funds, Units of money market mutual funds Prohibited Instruments Investment in small saving schemes (including PPF) Investment in small saving schemes (including PPF) Deposit of sale proceeds No restrictions To be deposited in NRO Account RBI has granted general permission to NRI / PIO to acquire shares from other NRI / PIO. Purchase of shares by NRIs from existing resident shareholders is permitted under the automatic route if the specified conditions are satisfied. NRIs from Nepal are also permitted to make direct investments on repatriation basis if they remit funds in foreign exchange. Portfolio Investment in companies, other than those engaged in the print media sector, listed on Stock Exchanges is permitted up to 5% for each NRI subject to overall ceiling of 10% of the company’s capital. The company concerned can increase this limit of 10% to 24%. NRI may invest in exchange traded derivative contracts approved by SEBI from time-to-time out of INR funds held in India on non- repatriation basis subject to the limits prescribed by SEBI. NRIs are permitted to invest up to 100% in PSE Capital/PSU Bonds, Government Securities (other than Bearer Securities), units of UTI & instruments of domestic Mutual Funds (referred to in Section 10 (23D) of the Income-tax Act, 1961). Consideration for purchase of the equity instruments should be received as inward remittance through banking channels or through funds held in NRE account, which is designated as NRE (PIS) Account used exclusively for investments on repatriation basis. NRIs are now permitted to credit the sale proceeds of FDI investment in their NRE/FCNR (B) accounts, provided the investment was received by way of remittance from abroad or by way debit to NRE/ FCNR (B) account of the investor. NRI / OCI can also invest on non-repatriation basis in all sectors except plantations, nidhis, chit funds and real estate trading. In such cases investments made on repatriation basis will also not apply. Investments made on non-repatriation basis is deemed to be domestic investment at par with investment made by residents.

Foreign Exchange Management Act, 1999 5.13 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication • Investment Facilities in brief Avenues of Investment Instruments Category of Investors Public/Private Limited Companies ‘Equity instruments’, which means equity shares, compulsorily convertible preference shares, compulsorily convertible debentures and share warrants issued by an Indian Company Non-Resident Indians/Person resident outside India/ NonResident Incorporated Entities/ Foreign Institutional Investors Public Limited Companies NCDs NRIs Trading Companies ‘Equity instruments’, which means equity shares, compulsorily convertible preference shares, compulsorily convertible debentures and share warrants issued by an Indian Company Person resident outside India MSME Units ‘Equity instruments’, which means equity shares, compulsorily convertible preference shares, compulsorily convertible debentures and share warrants issued by an Indian Company Person resident outside India EOU or Unit in Free Trade Zone or in Export Processing Zone ‘Equity instruments’, which means equity shares, compulsorily convertible preference shares, compulsorily convertible debentures and share warrants issued by an Indian Company Person resident outside India NRIs can repatriate their investments which were originally made on non-repatriation basis subject to RBI approval if: 1. The original investment was made in foreign exchange under the FDI Scheme, and 2. The sector / activity in which the investment was made is proposed to be converted into repatriable equity and is under the automatic route for FDI. If the above two conditions are not met, approval will have to be obtained from RBI for conversion of non-repatriable equity into repatriable equity. • Conversion into equity An Indian company can issue, subject to certain terms and conditions, equity shares / preference shares under the Approval Route: a. By way of conversion of ECB (other than import dues deemed as ECB or Trade Credit), lump sum technical knowhow fees, royalty or any other funds payable by the investee company, remittance of which does not require prior permission of the Government of India or RBI. b. By way of conversion of monies payable against import of capital goods/machineries/ equipment (other than second- hand machineries). c. Against receipt of money from overseas investor towards pre-operative/preincorporation expenses (including payments of rent, etc.).

FEMA and International Taxation 5.14 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Avenues of Investment Instruments Category of Investors Public/Private Ltd. Companies Equity instruments including Right Share other than share warrants Existing shareholders / Renouncees Under Scheme of amalgamation/ merger ‘Equity instruments’, which means equity shares, compulsorily convertible preference shares, compulsorily convertible debentures and share warrants issued by an Indian Company Existing shareholders Employees Stock Option ‘Equity instruments’, which means equity shares, compulsorily convertible preference shares, compulsorily convertible debentures and share warrants issued by an Indian Company Employees resident outside India ADR/GDR Receipts Non-residents Portfolio Investment Scheme ‘Equity instruments’, which means equity shares, compulsorily convertible preference shares, compulsorily convertible debentures and share warrants issued by an Indian Company RFPIs (Registered Foreign Portfolio Investor) & NRIs Investment in Derivatives Exchange Traded Derivatives RFPIs (on repatriation basis) & NRIs (on repatriation basis) Govt. Securities Govt. dated Securities/Treasury Bills, Units of Domestic Mutual Funds, Bonds issued by PSUs and shares of Public Sector Enterprises being divested NRIs & RFPIs Indian VCU or VCF or in a Scheme floated by VCF SEBI Registered VCF/VC Units SEBI Registered Foreign Venture Capital Investor

Foreign Exchange Management Act, 1999 5.15 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication (6) Acquisition and Transfer of Immovable property in India Immovable property in India can be acquired / transferred by following persons: Table A Indian Nationals Resident in India Non-Resident Indian (NRI) Persons of Indian Origin Resident Outside India FEMA is not applicable 1. Can acquire any immovable property other than agricultural land/plantation/ farm house 2. Can transfer/sell immovable property including agricultural land/plantation/ farm house to a person resident in India 3. Can transfer/sell any immovable property other than agricultural land/ plantation /farm house to an NRI/PIO resident outside India 1. Can acquire any immovable property other than agricultural land/plantation/farm house out of foreign currency funds or by way of gift 2. Can acquire any immovable property including agricultural land/plantation/farm house by way of inheritance 3. Can sell any immovable property other than agricultural land/ plantation/farm house to a person resident in India 4. Can gift any residential or commercial property to a person Resident in India or to a PIO Resident outside India/an NRI. 5. Can sell/gift any agricultural land/plantation/ farm house to a person resident in India who is a citizen of India. Notes: 1. Persons of Indian Origin do not include citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan. 2. NRI/PIO can borrow money from banks/approved housing finance companies for acquisition/ repairs/renovation/improvement of residential accommodation in India. 3. NRI/PIO can repatriate equivalent to the amount of foreign exchange remitted into India at the time of purchase. 4. Payment by NRI/PIO for purchase of immovable property cannot be by way of foreign currency notes or travellers cheques. 5. NRI/PIO employees of Indian companies in India or their branches outside India can also take loans from their employers for purchasing housing property in India or abroad or for any other purpose other than for utilising in the following activities: - a. Chit fund business b. Nidhi company c. Agricultural or plantation activity or in real estate business or construction of farm houses d. Trading in TDR e. Investment in capital market including margin trading and derivatives.

FEMA and International Taxation 5.16 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Table B Foreign Citizens Resident in India Foreign Citizens Resident Outside India Indian Branch / Office of Person Resident outside India No restrictions, except in the case of citizens of Pakistan, Bangladesh, Sri Lanka, China, Iran, Nepal, Afghanistan, Macau, Hong Kong & Bhutan who will require prior permission from RBI in all cases except where the immovable property is acquired by way of lease for less than 5 years. RBI has also allowed acquisition of immovable property by LongTerm Visa Holders being citizen of Afghanistan, Bangladesh or Pakistan belonging to minority communities in those countries, namely, Hindus, Sikhs, Buddhists, Jains, Parsis and Christians who is residing in India and has been granted a Long-Term Visa (LTV) by the Central Government only one residential immovable property in India as dwelling unit for self-occupation and only one immovable property for carrying out self-employment subject to certain conditions. Can acquire and transfer only after prior permission from RBI Foreign Embassy/Diplomat/ Consulate General Can acquire and sell immovable property other than agricultural land/ plantation property/farmhouse only after obtaining prior permission from the Ministry of External Affairs, Government of India and the consideration for acquisition is remitted from abroad Can acquire immovable property which is required for carrying on its activities, a declaration in Form IPI will have to file with RBI within 90 days of such acquisition. Repatriation of sale proceeds requires prior RBI approval (7) Branch / Liaison / Project office in India Automatic Route – If the foreign Entity’s Principal Business falls under the sector where 100% FDI is permitted Approval Route* – Citizen / Entity incorporated / registered in Pakistan, or, entity’s principal business is Defence, Telecom, Private Security and Information and Broadcasting, or overseas NPO / NGO / Government bodies * A citizen of or an entity registered/ incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau opening a BO/LO/PO in Jammu and Kashmir, North East region and Andaman and Nicobar Islands also need to obtain prior permission of RBI.

Foreign Exchange Management Act, 1999 5.17 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Branch Offices/ Liaison Offices Branch Office Liaison Office Track Record A profit making track record during the immediately Five Financial years in the home country A profit making track record during the immediately Three Financial years in the home country Net Worth** Not less than USD 100,000 or its equivalent. Not less than USD 50,000 or its equivalent. Permissible Activities – Export & Import of goods – only on wholesale basis. – Rendering professional or consultancy services. – Carrying on research work, in areas in which the parent company is engaged. – Promoting technical or financial collaborations between Indian companies and parent or overseas group company. – Representing the parent company in India and acting as buying/ selling agent in India. – Rendering services in information technology and development of software in India. – Rendering technical support to the products supplied by parent/ group companies. – Foreign airline/shipping company. – Representing in India the parent company / group companies. – Promoting export / import from / to India. – Promoting technical/financial collaborations between parent/group companies and companies in India. – Acting as a communication channel between the parent company and Indian companies. ** Total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a CPA or a Registered Account Practitioner Branch Office (BO) in SEZ RBI has granted General Permission to foreign companies for establishing branch/unit in Special Economic Zones (SEZ) to undertake manufacturing and service activities, subject to the following conditions: a. BO must function in those sectors where 100 per cent FDI is permitted; b. BO must comply with Part XXII of the Companies Act, 2013; c. BO must function on a standalone basis. Branches of Foreign Banks Foreign banks do not require separate approval under FEMA, for opening branch office in India provided they have obtained necessary approval under the provisions of the Banking Regulation Act, 1949, from Department of Banking Operations & Development, Reserve Bank.

FEMA and International Taxation 5.18 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Liaison Offices of Foreign Insurance Companies/Banks Foreign Insurance companies can establish Liaison Offices in India only after obtaining approval from the Insurance Regulatory and Development Authority (IRDA). Foreign banks can establish Liaison Offices in India only after obtaining approval from the Department of Banking Regulations (DBR), Reserve Bank of India. UIN & PAN BO / LO are granted a Unique Identification Number by RBI. They are, upon setting-up office, required to obtain PAN under Income-tax Act, 1961. The BO can freely remit profits earned from India, subject to payment of applicable taxes. Annual Activity Certificate Every BO / LO is required to file an Annual Activity Certificate (AAC) at the end of March 31 along with the audited Balance Sheet with RBI, through its Bank as well as with the Director General of Income Tax (International Taxation) on or before September 30 of that year. The certificate is to be obtained from a Chartered Accountant. Project Offices RBI has granted general permission to those foreign companies to establish Project Offices in India who have secured a contract from an Indian company to execute a project in India, and: i. The project is funded directly by inward remittance from abroad; or ii. The project is funded by a bilateral or multilateral International Financing Agency; or iii. The project has been cleared by an appropriate authority; or iv. A company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project. However, if the above criteria in respect of funding are not met, the foreign entity has to approach the Central Office of RBI for approval to set up a Project Office (PO) in India. PO can, subject to certain conditions, open two non-interest bearing foreign currency accounts. Similarly, PO can, subject to certain conditions, make remittances pending winding up/ completion of the project. Every BO/LO/PO from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau or Pakistan has to register with the State Police authorities. Copy of approval letter for persons from these countries shall be marked by the AD Category I bank to the Ministry of Home Affairs, Internal Security Division – I, Government of India, New Delhi for necessary action and record. All other countries are exempted from registering with the State Police authorities. (8) Trade Transactions – Import & Export • Import of Goods & Services The import of goods and services in India has to be in conformity with the Foreign Trade Policy and FEMA (Current Account Transaction) Rules, 2000. Remittance for Import payments Remittance for making payments for imports into India is allowed by AD Category-I bank for all bona fide trade transactions only after ensuring that the requisite details are made available. Obligation of Purchaser of foreign exchange i. For import of goods into India which shall be in conformity with the Foreign Trade Policy (FTP), a resident person may make payment through an international card held by him or through international credit/debit card in rupees against charged slip signed by the importer or as prescribed by Reserve Bank of India. ii. Any person resident in India may also make payment as under: (a) In rupees towards meeting expenses on travel to and from and within India of a

Foreign Exchange Management Act, 1999 5.19 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication person resident outside India who is on a visit to India; (b) By means of a crossed cheque or a draft as consideration for purchase of gold or silver in any form imported by such person in accordance with the laws in force; (c) A company or resident in India may make payment in rupees to its non-whole time director who is resident outside India and is on a visit to India for the company’s work and is entitled to payment of sitting fees or commission or remuneration, and travel expenses to and from and within India, in accordance with the provisions contained in the company’s Memorandum of Association or Articles of Association. Time Limit for Settlement i. Remittance to be completed before six months from the date of shipment, except where amounts are withheld towards guarantee of performance. If payment is delayed due to disputes or financial problems, AD bank may permit for its settlement but interest thereon will be payable only for a period of up to 3 years from date of shipment. For deferred payment arrangements – Any deferred payment arrangements (including suppliers’ and buyers’ credit) entered into, for up to three years in case of import of capital goods and up to one year or the operating cycle whichever is less, in case of import of non-capital goods are treated as trade credits for which guidelines in Master Direction for ECB and trade credit is to be followed. ii. For Import of Books – No restrictions on time limit. Third party payment for Imports Payment to third Party for import of goods is permitted subject to following conditionsi. Firm irrevocable purchase order/tripartite agreement should be there ii. Payment should be made to the third party should be mentioned on the invoice and bill of entry. Importer should comply with the related extant instructions including those on advance payment made for imports. Import of foreign exchange/ Indian Rupees General or special permission from Reserve Bank is required to bring foreign currency in India. i. Import of Foreign Exchange • Foreign Exchange in any form other than currency notes, bank notes and travellers’ cheques can be sent into India without any limitation. • A person may bring into India foreign Exchange without any limitation provided the person makes declaration to the custom authorities if the aggregate value of currency notes, bank notes or travellers’ cheques brought in exceeds US $ 10,000 at any one time or the aggregate value of foreign currency notes brought in exceeds US $ 5,000. ii. Import of Indian currency • Any person resident in India may bring into India while returning from any place outside India except from Nepal and Bhutan up to an amount not exceeding ` 25,000. • From Nepal and Bhutan, a person may bring Indian rupees of any amount in denominations up to ` 100. Advance Remittances AD Category – I bank may allow advance remittance for import of goods without any ceiling subject to the following conditions: i. An unconditional, irrevocable standby Letter of Credit or a guarantee from an

FEMA and International Taxation 5.20 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication international bank of repute situated outside India or a guarantee of an AD Category–I bank in India, if such a guarantee is issued against the counter- guarantee of an international bank of repute situated outside India needs to be obtained if advance remittance exceeds US $ 2,00,000. ii. The requirement of the bank guarantee / standby Letter of Credit may not be insisted upon for advance remittances up to US $ 5,000,000 (US Dollar five million) in cases where the importer (other than a Public Sector Company or a Department/ Undertaking of the Government of India/ State Government/s) is unable to obtain bank guarantee from overseas suppliers and the AD Category – I bank is satisfied about the track record and bona fides of the importer. iii. A Public Sector Company or a Department/ Undertaking of the Government of India / State Government/s which is not in a position to obtain a guarantee from an international bank of repute against an advance payment, is required to obtain a specific waiver for the bank guarantee from the Ministry of Finance, Government of India before making advance remittance exceeding US $ 100,000. • Export of Goods & Services The DGFT announces various policies & procedures to be followed for exports from India, from time-to-time. AD Category – I banks shall conduct export transactions in conformity with the Foreign Trade Policy and the Rules framed by the Government of India and the Directions issued by Reserve Bank from time-to-time. Realisation and repatriation of proceeds of export of goods / software / services i. Period of Realisation and repatriation of export proceeds shall be 9 months from date of export for all exporters. ii. 15 months - if the goods are exported to a warehouse established outside India. Authorised Dealers are allowed to extend time up to a further period of 6 months beyond 9 months, if the exporter submits a declaration that the export proceeds will be realised within the extended time. Manner of receipt and payment i. The export proceeds shall be received through the AD Bank in the manner provided in FEM (Manner of Receipt and Payment) Regulations. ii. Online payment has been allowed by AD Category-I bank for repatriation of export related remittances. However export proceeds should not exceed US $ 10,000. Third Party Payments for exports Subject to following conditions, third party payments for exports is permitted – i. Firm irrevocable order backed by a tripartite agreement should be in place. ii. It should be routed through banking channel only. iii. Remittance by third party should be declared in the export declaration form by the exporter. iv. Responsibility to realise and repatriate the export proceeds from such third party is of the exporter. v. Payments may be received from an open cover country if the shipment is made to Group II Restricted Cover country like Sudan, Somalia. International Trade Settlement in Indian Rupees (INR) To promote global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR, the RBI issued Circular vide A.P. (DIR Series) Circular No.10 dated July 11, 2022 t put in place an additional arrangement for invoicing, payment, and settlement of exports / imports in INR. AD Banks require prior approval of RBI to implement the mechanism.

Foreign Exchange Management Act, 1999 5.21 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication The framework is as below: i. Exports and imports under this arrangement to be denominated and invoiced in Rupee (INR) ii. Exchange rate between the currencies of the two trading partner countries to be market determined iii. Settlement of trade transactions under this arrangement shall take place in INR through Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country as per process laid down. Permission for Export Write-off by AD Conditions a. The relevant amount has remained outstanding for one year or more; b. The aggregate amount of write off allowed during the financial year does not exceed 10% of the total export proceeds realised by the exporter through the concerned AD Category – I banks during the previous financial year; c. The limit of self-write off by an exporter other than the status holder exporter is 5% and by status holder exporter is 10% d. Satisfactory documentary evidence is furnished in support of the exporter having made all efforts to realise the dues; e. The exporter is a regular customer of the bank for at least 6 months. He is fully compliant with KYC/AML guidelines and AD Bank is satisfied with the bonafides of the transaction. f. The case falls under any of the undernoted categories: i. The overseas buyer has been declared insolvent and a certificate from the official liquidator indicating that there is no possibility of recovery of export proceeds produced. ii. The overseas buyer is not traceable over a reasonably long period of time. iii. The goods exported have been auctioned or destroyed by the Port/ Customs/Health authorities in the importing country. iv. The unrealised amount represents the balance due in a case settled through the intervention of the Indian Embassy, Foreign Chamber of Commerce or similar Organisation. v. The unrealised amount represents the undrawn balance of an export bill (not exceeding 10% of the invoice value) remained outstanding and turned out to be unrealisable despite all efforts made by the exporter. vi. The cost of resorting to legal action would be disproportionate to the unrealised amount of the export bill or where the exporter even after winning the Court case against the overseas buyer could not execute decree for reasons beyond his control. vii. Bills were drawn for the difference between the letter of credit value and actual export value or between the provisional and the actual freight charges but the amounts have remained unrealized consequent to dishonor of the bills by the overseas buyer with no prospects of realization. Export of Currency Reserve Bank grants general permission for export of Indian currency in the following circumstances only: – i. Any person resident in India may take outside India (other than Nepal and Bhutan) an amount not exceeding ` 25,000. ii. Any person resident outside India, not being a citizen of Pakistan or Bangladesh and also not a traveller coming from or going to Pakistan or Bangladesh,

FEMA and International Taxation 5.22 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication and visiting India may take outside India up to an amount not exceeding ` 25,000. Advances against exports i. The exporter is under an obligation to ensure that: a) the shipment of goods is made within one year if he receives advance payment from a buyer outside India and b) the document covering the shipment are routed through AD Category-I bank through whom the advance payment is received. ii. In case of exporter’s inability to make the shipment no refund of unutilized portion of advance received or towards payment of interest shall be made after the expiry of one year without the prior approval of RBI. Exporter’s caution list i An AD bank would recommend the Reserve Bank to put an exporter under caution-list, depending upon the exporters track record with the AD bank and investigative agencies. ii Recommendations will be made by AD bank to the Regional Office if the exporter has come to the adverse notice of the Enforcement Directorate(ED) / Central Bureau of Investigation (CBI) / Directorate of Revenue Intelligence (DRI) /any such other law enforcement agency and/or the exporter is not traceable and/or is not making sincere efforts to realise the export proceeds. iii Also, the recommendations to de-cautionlisting an exporter shall be made by the AD bank to Regional Office of the Reserve Bank (9) Borrowings from Non-Residents External Commercial Borrowings [ECB] ECB is an important component of India’s overall external debt. ECB refers to commercial loans raised by eligible resident entities from recognized non-resident lenders and should conform to parameters such as minimum maturity, permitted and nonpermitted end-uses, maximum all-in-cost ceiling, etc. The parameters apply in totality and not on a standalone basis. ECB can be raised in any freely convertible foreign currency as well as in Indian Rupees. Change of currency of ECB from one convertible foreign currency to any other convertible foreign currency as well as to INR is freely permitted however, change of currency from INR to any foreign currency are not permitted. ECB can be in the following forms: FCY Denominated ECB INR denominated ECB Loans including bank loans. Loans including bank loans. Financial Lease Financial Lease Floating/fixed rate notes/bonds/ debentures (other than fully and compulsorily convertible instruments) Floating/fixed rate notes/bonds/debentures/preference shares (other than fully and compulsorily convertible instruments) Trade credits beyond 3 years Trade credits beyond 3 years Foreign Currency Convertible Bonds (FCCB) and Foreign Currency Exchangeable Bonds (FCEB) Plain vanilla Rupee denominated bonds issued overseas (also known as Masala Bonds), which can either be either placed privately or listed on exchanges as per host country regulations.

Foreign Exchange Management Act, 1999 5.23 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication A. Minimum Average Maturity Minimum average maturity period (MAMP) will be 3 years for all the entities except the following: Sr. No. Particulars Condition No. of Year 1 Manufacturing Sector Companies ECB upto 50 million USD per financial year MAMP 1 year. More than 50 Million USD per financial year MAMP 3 year. 2 ECB raised from foreign equity holder Utilised for working capital/general corporate purpose/ repayment of rupee loans MAMP 5 years. 3 ECB from other than foreign equity holder Utilised for repayment of Rupee loans availed domestically for capital expenditure and/or onlending by NBFCs for the same purpose MAMP 7 years 4 ECB from other than foreign equity holder Utilised for working capital purposes or general corporate purposes and/or on – lending by NBFCs for working capital purposes or general corporate purposes MAMP 10 years 5 ECB from other than foreign equity holder Utilised for repayment of Rupee loans aviled domestically for purposes other than capital expenditure and/or on – lending by NBFCs for the same purpose MAMP 10 years 6 Other than above - MAMP 3 years. However, Public Sector Oil Marketing Companies (OMCs) can raise ECB for working capital purposes with minimum average maturity period of 3 years up to USD 10 billion or equivalent from all recognized lenders under the automatic route without mandatory hedging and individual limit requirements. OMCs should have a Board approved forex mark to market procedure and prudent risk management policy The call and Put option, if any, shall not be exercisable prior to completion of minimum average maturity. B. Eligible Borrowers FCY Denominated ECB INR denominated ECB All entities eligible to receive FDI All entities eligible to raise FCY ECB Port trust, Units in SEZ, SIDBI, EXIM Bank of India Registered entities engaged in micro finance activities viz registered not for profit companies, registered societies/trust/cooperatives and Non-Government organisations. C. Recognised Lenders Recognised lenders should be any entity which is resident of FATF** or IOSCO** Compliant countries.

FEMA and International Taxation 5.24 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Additional points: Particulars Remarks Multilateral financial institutions (such as, IFC, ADB, etc.) / regional financial institutions and Government owned (either wholly or partially) financial institutions Can be recognised lenders Individuals Can be recognised lenders only if they are resident of FATF or IOSCO compliant countries & Foreign equity holders of borrower entity; or Holder of debt securities listed abroad Foreign branches / subsidiaries of Indian banks For FCY ECB Can be recognised lenders (except for FCCB & FCEB) For Rupee denominated ECB Cannot be recognised lenders (However, participation as arrangers/ underwriters/ marketmakers/ traders for Rupee denominated Bonds issued overseas is allowed subject to prudential norms.) ** (FATF compliant country: A country that is a member of Financial Action Task Force (FATF) or a member of a FATF-Style Regional Body; and should not be a country identified in the public statement of the FATF as (i) A jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or (ii) A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies. IOSCO compliant country: A country whose securities market regulator is a signatory to the International Organization of Securities Commission’s (IOSCO’s) Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to bilateral Memorandum of Understanding with the Securities and Exchange Board of India (SEBI) for information sharing arrangements.) D. All-in-Cost (AIC) The All-in-cost ceiling is prescribed through a spread over the benchmark***, i.e. 550 basis points spread per annum over 6 months benchmark rate for existing ECB in foreign currency where benchmark rate have changed from LIBOR to Alternative Reference Rate (ARR), Benchmark rate plus 500 basis points for new ECBs and 450 basis points spread per annum for ECB in INR. The all-in-cost ceiling was temporarily increased by 100 bps for eligible borrowers of investment grade rating from Indian Credit Rating Agencies (CRAs) for ECBs raised between 6th July 2022 till 31st December 2022. All-in-cost includes and excludes the following: Expenses included Expenses excluded - Rate of interest, - other fees/expenses/ charges - guarantee fees, - Export Credit Agency (ECA) charges, whether paid in FC or INR - Commitment fees - withholding tax payable in INR In the following cases, All in cost should be restricted:

Foreign Exchange Management Act, 1999 5.25 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Particulars All in Costs Limit Fixed rate Loans Swap costs + Spread Should not be more than floating rate + applicable spread (i.e. 450 basis points). Private Placement Issue related expenses Should not exceed 2% of the issue size. Foreign Currency Convertible Bonds Issue related expenses Should not exceed 4% of the issue size. (ECB’s proceeds cannot be used for payment of interest/charges) ***Benchmark Rate: Benchmark rate for ECB/TC in FCY refers to any widely accepted interbank rate or ARR of 6-month tenor, applicable to the currency of borrowing. Benchmark rate in case of Rupee denominated ECB/TC will be prevailing yield of the Government of India securities of corresponding maturity. E. Permitted End-Use The concept of negative list is introduced to provide a list of activities where ECB proceeds cannot be utilized which include the following: A) Real Estate Activities* B) Investment in capital market C) Equity Investment D) Working capital purposes except from foreign equity holders E) General corporate purposes except from foreign equity holders F) Repayment of Rupee Loans except from foreign equity holders G) On lending to entities for the above activities** *Real estate activities: Any real estate activity involving own or leased property for buying, selling and renting of commercial and residential properties or land and also includes activities either on a fee or contract basis assigning real estate agents for intermediating in buying, selling, letting or managing real estate. However, this would not include construction/development of industrial parks/integrated township/SEZ, purchase/long term leasing of industrial land as part of new project/modernisation of expansion of existing units or any activity under ‘infrastructure sector’ definition. ** RBI in consultation with Government of India has issued a circular dated 30th July 2019 to rationalize the end – use provisions under ECB Policy. It allows certain eligible borrowers including NBFC’s to raise funds from recognized lenders for working capital and general corporate purposes subject to fulfillment of minimum average maturity period and other conditions under ECB Framework. It also allows NBFCs to borrow for on-lending purposes. There are also other relaxations brought out by circular with respect to end use provisions for certain category of eligible corporate borrowers and lender banks. One can refer to the circular at https://www.rbi.org.in/Scripts/NotificationUser. aspx?Id=11636&Mode=0. F. Parking of ECB Proceeds ECB proceeds are permitted to be parked abroad as well as domestically in a manner prescribed by RBI. To provide relief to ECB borrowers affected by the COVID- 19 pandemic, RBI had allowed them to park unutilised ECB proceeds drawn down on or before March 01, 2020 in term deposits with AD Category-I banks in India prospectively, for an additional period up to March 01, 2022. It was a one time measure, with effect from April 07, 2021. G. Limits and Leverage Under the ECB framework, all eligible borrowers can raise ECB up to USD 750 million or equivalent per financial year under automatic route. The automatic route limit was increased to USD 1.5 billion or equivalent for ECBs to be raised from 6th July 2022 till December 31, 2022

FEMA and International Taxation 5.26 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Financial Limit Leverage Automatic Route/ Approval Route ECB more than USD 750 million Approval Route ECB upto USD 750 million ECB/Equity Ratio exceeds 7:1 Approval Route ECB/Equity Ratio does not exceeds 7:1* Automatic Route *Not applicable to existing /proposed ECB upto USD 5 million. ECB exceeding 5 million should fall in line for leverage requirements. Further, the borrowing entities will also be governed by the guidelines on debt equity ratio issued, if any, by the sectoral or prudential regulator concerned. ECB liability-Equity ratio: For the purpose of ECB liability-equity ratio, ECB amount will include all outstanding amount of all ECBs (other than INR denominated) and the proposed one (only outstanding ECB amounts in case of refinancing) while equity will include the paid-up capital and free reserves (including the share premium received in foreign currency) as per the latest audited balance sheet. Both ECB and equity amounts will be calculated with respect to the foreign equity holder. Where there are more than one foreign equity holders in the borrowing company, the portion of the share premium in foreign currency brought in by the lender(s) concerned shall only be considered for calculating the ratio. The ratio will be calculated as per latest audited balance sheet. H. Exchange rate on conversion Particulars Rate to be considered From FCY ECB into INR ECB Cannot exceed the Exchange Rate on the date of such agreement for conversion. From INR ECB to Rupee Exchange rate prevailing at the date of settlement I. Hedging provision The entities raising ECB are required to follow the guidelines for hedging issued, if any, by the concerned sectoral or prudential regulator in respect of foreign currency exposure. J. Procedure for raising ECBs under approval route The borrowers may approach the RBI with an application in prescribed format (Form ECB) for examination through their AD Category I bank. Such cases shall be considered keeping in view the overall guidelines, macroeconomic situation and merits of the specific proposals. L. Reporting requirements a. Loan Registration Number is a mandatory requirement for borrowing under ECB framework. b. Changes in Terms and Conditions of ECB should be reported to the DSIM through revised Form ECB within 7 days. c. The borrowers are required to report actual ECB transactions through Form ECB 2 Return through the AD Category I bank on monthly basis so as to reach DSIM within seven working days from the close of month to which it relates. d. Non Submission of Form ECB 2, will attract late submission fee. Sr. No. Type of Return/ Form Applicable LSF 1 Form ECB [` 7500 + (0.025% x A 2 Form ECB-2 x n)] 3 Revised Form ECB Notes: e. “n” is the number of years of delay in submission rounded-upwards to the nearest month and expressed up to 2 decimal points. f. “A” is the amount involved in the delayed reporting.

Foreign Exchange Management Act, 1999 5.27 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication g. LSF amount is per return. However, for any number of Form ECB-2 returns, delayed submission for each LRN will be treated as one instance for the fixed component. Further, ‘A’ for any ECB-2 return will be the gross inflow or outflow (including interest and other charges), whichever is more. h. Maximum LSF amount will be limited to 100 per cent of ‘A’ and will be rounded upwards to the nearest hundred. M. Conversion of ECB into Equity Conversion of ECBs, including those which are matured but unpaid, into equity is permitted subject to the following conditions: i. The conversion, which should be with the lender’s consent and without any additional cost, should not result in contravention of eligibility and breach of applicable sector cap on the foreign equity holding under FDI policy; ii. Applicable pricing guidelines for shares are complied with; iii. In case of partial or full conversion of ECB into equity, the reporting to the Reserve Bank has to be complied with. iv. If the borrower concerned has availed of other credit facilities from the Indian banking system, including foreign branches/subsidiaries of Indian banks, the applicable prudential guidelines issued by the Department of Banking Regulation of Reserve Bank, including guidelines on restructuring are complied with; v. Consent of other lenders, if any, to the same borrower is available or atleast information regarding conversions is exchanged with other lenders of the borrower. vi. For conversion of ECB dues into equity, the exchange rate prevailing on the date of the agreement between the parties concerned for such conversion or any lesser rate can be applied with a mutual agreement with the ECB lender. It may be noted that the fair value of the equity shares to be issued shall be worked out with reference to the date of conversion only. N. Borrowings by Entities under Investigation All entities against which investigation/ adjudication/appeal by the law enforcing agencies for violation of any of the provisions of the Regulations under FEMA is pending, may raise ECBs as per the applicable norms. The borrowing entity shall inform about pendency of such investigation/adjudication/appeal to the AD Category-I banks/RBI as the case may be. O. ECB by entities under restructuring/ECB facility for Resolution Applicants under CIRP An entity which is under restructuring scheme/ corporate insolvency resolution process can raise ECB only if specifically permitted under the resolution plan. P. Brief Framework of ECB facility for Startups Sr. No. Particulars Framework for availing ECB under Automatic Route 1. Eligibility An entity recognised as a Start-up by the Central Government as on date of raising ECB 2. Maturity Minimum average maturity period will be 3 years. 3. Recognised Lender Lender / investor shall be a resident of a FATF compliant country. However, foreign branches/subsidiaries of Indian banks and overseas entity in which Indian entity has made overseas direct investment as per the extant Overseas Direct Investment Policy will not be considered as recognized lenders under this framework.

FEMA and International Taxation 5.28 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Sr. No. Particulars Framework for availing ECB under Automatic Route 4. Forms Loans or non-convertible, optionally convertible or partially convertible preference shares. 5. Currency Any freely convertible currency or in Indian Rupees (INR) or a combination thereof. In case of borrowing in INR, the non-resident lender, should mobilise INR through swaps/outright sale undertaken through an AD Category-I bank in India. 6. Limit The borrowing per Start-up will be limited to USD 3 million or equivalent per financial year either in INR or any convertible foreign currency or a combination of both. 7. All - in - cost Shall be mutually agreed between the borrower and the lender. 8. End Uses For any expenditure in connection with the business of the borrower. 9. Conversion into Equity Conversion into equity is freely permitted subject to Regulations applicable for foreign investment in Start-ups. 10. Security Security can be in the nature of movable, immovable, intangible assets (including patents, intellectual property rights), financial securities, etc. and shall comply with FDI / FPI / or any other norms applicable for foreign lenders / entities holding such securities. Further, issuance of corporate or personal guarantee is allowed. Guarantee issued by a nonresident(s) is allowed only if such parties qualify as lender under ECB for Start-ups. However, issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by Indian banks, all India Financial Institutions and NBFCs is not permitted. 11. Hedging The overseas lender, in case of INR denominated ECB, will be eligible to hedge its INR exposure through permitted derivative products with AD Category – I banks in India. The lender can also access the domestic market through branches/ subsidiaries of Indian banks abroad or branches of foreign bank with Indian presence on a back to back basis. 12. Conversion Rate In case of borrowing in INR, the foreign currency - INR conversion will be at the market rate as on the date of agreement. 13. Other Important Provisions Provisions on leverage ratio and ECB liability: Equity ratio will not be applicable. Other provisions as included in ECB Framework would be applicable. Other start – ups not included in the aforesaid definition of start- up but are eligible to receive FDI, can also raise ECBs under the general ECB route/framework.

Foreign Exchange Management Act, 1999 5.29 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Reporting of External Commercial Borrowings Particulars Forms/ Documents Documents to be Submitted to Whom Period in which to be reported Remarks For Allotment of Loan Registration Number (LRN) (both under Automatic and Approval Route) from RBI Form ECB in duplicate which also contains terms and conditions of ECB (Certified by a CA or a CS) Designated AD bank. Loan amount cannot be drawn till the time LRN is obtained. 1. Borrowers may enter into loan Agreement complying with the ECB guidelines with recognised lender for raising ECB under the Automatic Route without the prior approval of the Reserve Bank. 2. Loan Agreement need not be submitted. Monthly return regarding use of External C o m m e r c i a l Borrowings. Form ECB- 2 Return (Certified by a CA or a CS and AD) T h r o u g h D e s i g n a t e d AD Bank to Department of Statistics and I n f o r m a t i o n M a n a g e m e n t (DSIM), Reserve Bank of India. Within 7 working days from the close of month to which it relates. If there are no transactions, still a NIL return should be submitted. Application for ECB under Approval Route Form ECB (Annexure I) along with: (1) A copy of offer letter from the overseas lender/ supplier furnishing complete details of the terms and conditions of proposed ECB and (2) A copy of the import contract, p r o f o r m a / commercial invoice/ bill of lading certified by AD. Designated AD bank to the Chief General Manageri n - C h a r g e , Foreign Exchange D e p a r t m e n t , Reserve Bank of India, Central office, External C o m m e r c i a l B o r r o w i n g s Division, Mumbai.

FEMA and International Taxation 5.30 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Particulars Forms/ Documents Documents to be Submitted to Whom Period in which to be reported Remarks Conversion of ECB into EquityIn case of Full Conversion. Form FC- GPR Online on FIRMS portal (under SMF) Within 7 working days from the close of month to which it relates. 1. In case of Full Conversion the words ‘’ECB Wholly Converted to Equity’’ should be clearly indicated on top of the ECB- 2 form. 2. Once reported, filing of ECB-2 in the subsequent months is not necessary. Form ECB-2 Department of Statistics and I n f o r m a t i o n M a n a g e m e n t (DSIM), RBI Conversion of ECB into EquityIn case of Partial Conversion. Form FC- GPR for conversion of shares and for remaining portion of ECB, Form ECB- 2 Online on FIRMS portal. Department of Statistics and Information M a n a g e m e n t (DSIM), RBI Within 7 working days from the close of month to which it relates. In case of Partial Conversion the words ‘’ECB Partially Converted to Equity’’ should be clearly indicated on top of the ECB2 form C h a n g e s / Modifications in the drawdown/ r e p a y m e n t schedule Revised Form ECB T h r o u g h D e s i g n a t e d AD Bank to Department of Statistics and I n f o r m a t i o n M a n a g e m e n t (DSIM), Reserve Bank of India. Not later than 7 days from the date of changes effected. Average maturity period, as declared while obtaining the LRN should be maintained. Changes in the currency of Borrowings – – – Subject to the condition that the proposed currency of borrowing is freely convertible. Change of the AD Bank – – – Subject to the No- Objection certificate (NOC) from the existing Designated AD bank.

Foreign Exchange Management Act, 1999 5.31 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Particulars Forms/ Documents Documents to be Submitted to Whom Period in which to be reported Remarks Changes in the Name of the Borrower Company – – – Subject to production of S u p p o r t i n g D o c u m e n t s evidencing the change in the name from the Registrar of Companies. Change in the Recognised Lender – – – Authorised dealer ensuring that the new Lender is a Recognised Lender per the extant ECB Norm. Cancellation of LRN – – – Subject to ensuring that no Drawdown for the said LRN has taken place and the monthly ECB-2 returns till date in respect of the LRN have been submitted to DSIM. Change in the end use of ECB proceeds. – – – Subject to ensuring that the proposed end use is permissible under the Automatic Route as per the extant ECB guidelines and the monthly ECB-2 returns till date in respect of the LRN have been submitted to DSIM.

FEMA and International Taxation 5.32 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Particulars Forms/ Documents Documents to be Submitted to Whom Period in which to be reported Remarks Reduction in Amount of ECB. – – – The consent from the Lender for reduction in Loan Amount has been obtained Reduction in all-incost of ECB – – – Subject to ensuring that the consent of the Lender has been obtained. Reporting of FCCB and FCCEB shall be same as Above except for the changes to be incorporated. TRADE CREDITS Trade Credits (TC) refer to credits extended for imports directly by the overseas supplier, bank and financial institution for maturity of less than three years. Trade Credits can be supplier’s trade credits or buyer’s trade credits. Supplier’s Trade Credit – credit for imports into India extended by the overseas supplier. Buyer’s Trade Credit – loans from overseas bank or financial institution. Amount and Maturity Automatic Route - Up to US $ 150 million or equivalent per import transaction for oil/gas refining and marketing, airline and shipping companies. For others up to USD 50 million or equivalent per import transaction. For import of permissible non-capital goods the maturity period is up to one year from the date of shipment or the operating cycle whichever is less. For import of permissible capital goods the maturity period is up to three years from the date of shipment. No roll-over/extension will be permitted beyond the permissible period. The maturity period is the same for transactions under the Automatic Route or the Approval Route. For shipyards/shipbuilders, the period of Trade Credit for import of non - capital goods can be up to 3 years All in-cost ceiling for Trade Credits is benchmark plus 350 basis points for existing TCs linked to LIBOR whose benchmarks are changed to ARR and benchmark rate plus 300 basis points for new TCs. Benchmark rate plus 250 basis points for Trade credits in INR. It includes rate of interest, other fees, expenses, charges, guarantee fees whether paid in foreign currency or INR. However, withholding tax payable in INR shall not be a part of all-in-cost.

Foreign Exchange Management Act, 1999 5.33 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Parameters FCY denominated TC INR denominated TC Exchange rate in case of change/ conversion Exchange Rate prevailing on the date of agreement between parties concerned for such change or exchange rate, whichever is less than the rate prevailing on the date of agreement, if consented by the TC lender. Exchange rate will be rate prevailing on the date of settlement. Hedging provision The entities raising TC are required to follow the guidelines for hedging, if any, issued by the concerned sectoral or prudential regulator in respect of foreign currency exposure. Such entities shall have a board approved risk management policy. The overseas investors are eligible to hedge their exposure in Rupee through permitted derivative products with AD Category I banks in India. The investors can also access the domestic market through branches / subsidiaries of Indian banks abroad or branches of foreign banks with Indian presence on a back to back basis. Change of Currency of Borrowing It is freely permitted It is not permitted Trade Credits in SEZ/FTWZ/DTA TC can be raised by a unit or a developer in a SEZ including FTWZ for purchase of non-capital and capital goods within an SEZ including FTWZ or from a different SEZ including FTWZ subject to compliance with parameters stated therein. TC transactions in respect of SEZs and DTAs as permitted above should also be in compliance with applicable provisions of SEZ Act, 2005 as amended from time to time. Reporting Requirements TC transactions are subject to the reporting requirements on monthly basis and quarterly basis in the prescribed format. i. Monthly Reporting: AD Category I banks are required to furnish details of TCs like drawal, utilisation, and repayment of TC approved by all its branches, in a consolidated statement, during a month, in Form TC to the Director, Division of International Trade and Finance, Department of Economic Policy and Research, RBI, Central Office, Fort, Mumbai – 400001 through email. Suppliers’ credit beyond 180 days and up to one year/three years from the date of shipment for non-capital/capital goods respectively, should also be reported by the AD banks. Further, permissions granted by the AD banks/Regional offices of Reserve Bank for settlement of delayed import dues should also be reported. ii. Quarterly Reporting: AD Category I banks are also required to furnish data on issuance of bank guarantees for TCs by all its branches, in a consolidated statement, at quarterly intervals on the XBRL platform. Borrowings through Loans/Deposits i. Indian Companies, other Body Corporates, Indian Proprietary Concerns and Firms can accept fresh deposits from NRI only if the deposit is by way of debit to the NRO account of the lender and the amount deposited does not represent inward remittances or transfer from NRE/FCNR (B) Accounts into the NRO Account of the lender. However, they are permitted to hold and renew on maturity existing deposits

FEMA and International Taxation 5.34 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication received by them on repatriation as well as non- repatriation basis. ii. Resident Individuals are permitted to avail of interest free loans up to US $ 250,000 from their NRI / PIO relative(s) (as defined under the Companies Act, 2013) subject to certain conditions. iii. Special permission of RBI will be required in case where deposits / loans do not fulfill the specified criteria or where the deposits/ loans are on repatriation basis in the case of proprietary concerns and firms. iv. Banks can grant loans without any ceiling but subject to usual margin requirements (in Indian Rupees in India and in foreign currency in India or overseas) against NRE and FCNR (B) deposits either to the depositors or third parties in India or overseas. (10) Overseas Direct Investments Meaning Overseas Investment means financial commitment and Overseas Portfolio Investments by PROI Further, Overseas Direct Investment means investment by way of acquisition of unlisted equity capital of a foreign entity, or subscription as a part of the memorandum of association of a foreign entity, or investment in ten per cent, or more of the paid-up equity capital of a listed foreign entity or investment with control* where investment is less than ten per cent. of the paid-up equity capital of a listed foreign entity Contrastingly, Overseas Portfolio Investment means investments in foreign securities other than ODI explained above. Which means less than 10% paid-up capital of a listed company. OPI does not include investment in i) any unlisted debt instruments; or ii) any security which is issued by a person resident in India who is not in an IFSC; or iii) any derivatives unless otherwise permitted by Reserve Bank; or iv) any commodities including Bullion Depository Receipts (BDRs). * Control has been defined to include the following: - the right to appoint majority directors - to control management or policy decisions exercisable by a person individually or persons acting together - by virtue of their shareholding, management rights, shareholders agreements, voting rights which entitle them to 10% of more of the voting rights - the above control can be direct or indirect Non-Debt Instruments vs Debt Instruments The FEM (Overseas Investment) Rules shall be prescribed by the Central Government (through the Ministry of Finance), the FEM Overseas Investment Regulations shall be governed and prescribed by RBI (in consultation with the Central Government). This modus operandi is in line with amendment to Section 6 (Capital Account Transaction) and Section 47 (Power to make regulations) of the Foreign Exchange Management Act 1999 which resulted in a power shift from the RBI to the Central Government, enhancing the latter’s involvement in foreign exchange transactions. A bifurcation of instruments into debt instruments and non-debt instruments was introduced wherein the RBI (in consultation with the Central Government) was assigned the responsibility to draft regulations for debt instruments, the Central Government (in consultation with the RBI) was entrusted with the power to frame rules for nondebt instruments. Debt Instruments: (i) Government bonds; (ii) corporate bonds; (iii) all tranches of securitisation structure which are not equity tranche; (iv) borrowings by firms through loans; and

Foreign Exchange Management Act, 1999 5.35 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication (v) depository receipts whose underlying securities are debt securities; Non-Debt Instruments: (i) all investments in equity in incorporated entities (public, private, listed and unlisted); (ii) capital participation in Limited Liability Partnerships; (iii) all instruments of investment as recognised in the Foreign Direct Investment policy from time to time; (iv) investment in units of Alternative Investment Funds and Real Estate Investment Trust and Infrastructure Investment Trusts; (v) investment in units of mutual funds and Exchange-Traded Fund which invest more than fifty per cent in equity; (vi) the junior-most layer (i.e. equity tranche) of securitisation structure; (vii) acquisition, sale or dealing directly in immovable property; (viii) contribution to trusts; and (ix) depository receipts issued against equity instruments; Eligible Entities/Person a. A company incorporated in India under Companies Act 2013; or b. A body corporate incorporated by any law; or c. A partnership firm registered under the Indian Partnership Act, 1932; d. A Limited Liability Partnership (LLP), formed and incorporated under the Limited Liability Partnership Act, 2008. e. Resident Individual upto USD 2,50,000 under LRS Scheme HUFs, AOPs, etc. are not allowed to invest abroad. Proprietary concern and Unregistered Partnership firm can invest abroad by the proprietor concerned or the individual partners concerned within their limit available under the LRS limit of USD 250,000. Strategic sector* investments in excess of the LRS limit may be made after obtaining prior approval from RBI. * Strategic Sector includes energy and natural resources sector such as oil, gas, coal, mineral ores, submarine cable system and start-ups. Prior Permission is required for Investment in a foreign entity formed, registered or incorporated in Pakistan S. No. Restrictions and Prohibitions S. No. General Permissions for purchase/ acquisition of securities and sale of shares/ securities so acquired S. No. Outside the purview of OI Rules & OI Regulations A] Prohibited Investments: 1. Investments in Real Estate Business (buying and selling of real estate or trading in Transferable Development Rights (TDRs) but does not include development of townships, construction of residential/ commercial premises, roads or bridges or leasing) 1. Bonus shares on foreign securities held in accordance with the provisions of the Act or rules or regulations made thereunder 1. Investment by financial institution in an IFSC

FEMA and International Taxation 5.36 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication S. No. Restrictions and Prohibitions S. No. General Permissions for purchase/ acquisition of securities and sale of shares/ securities so acquired S. No. Outside the purview of OI Rules & OI Regulations 2. Gambling in any form 2. Invest in equity capital issued as rights issue (PRI may also renounce rights in favour of PRI or PROI) 2. Investment out of funds held in RFC account 3. Dealing with financial products linked to the Indian rupee without specific approval of RBI 3. Investment when not permanently resident in India, out of their foreign currency resources outside India 4. Investment in accordance with Sec 6(4) of FEM Act B] Restrictions: 4. Foreign entity (as well as step down subsidiary or SPV) to be made in bonafide business activity. (bonafide business activity” shall mean any business activity permissible under any law in force in India and the host country or host jurisdiction, as the case may be) 5. ODI in start-ups is permitted by Indian entity only from internal accruals whether from Indian entity or group or associate companies in India. In case of resident individuals, from own funds only. 6. Financials commitment in a foreign entity that has invested or invests into India directly or indirectly is only permitted in a structure resulting in not more than 2 layers of subsidiaries Foreign Entity Abroad Indian investments abroad in a foreign entity formed or registered or incorporated outside India, including International Financial Services Centre that has limited liability* are permitted by RBI. *A specific carve out from applicability of limited liability condition is provided to ODI in strategic sector. Automatic Route Approval Route Case where prior permission is not required: Case where prior permission from RBI is required: Investments can be made under the automatic route up to 400% of the net worth (subject to a maximum investment of ` 1 billion.) of the Indian entity as on the date of the last audited balance sheet Investment exceeding ` 1 billion in a financial year will be under the approval route Investments can be made under the automatic route (subject to overall LRS limit of USD 250,0000) by resident individual Investment exceeding 400% of the net worth of the Indian entity as on the date of the last audited balance sheet* * Last audited balance sheet has been defined as audited balance sheet not older than eighteen months preceding the date of the transaction

Foreign Exchange Management Act, 1999 5.37 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Note: Net worth is now linked to the definition under Companies Act in case of a Indian Company and in case of registered partnership or LLP, networth shall be the sum of the capital contribution of partners and undistributed profits of the partners after deducting therefrom the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the last audited balance sheet. The concept of utilising the net worth of the subsidiary/holding company by the Indian entity has been discontinued under the new rules. Eligible Instruments Equtiy capital – which includes equity shares or perpetual capital or instruments that are irredeemable or contribution to non-debt capital of a foreign entity in the nature of fully and compulsorily convertible instruments. Investment can be made by way of loans or by way of guarantees provided that the Indian entity is eligible to make ODI + has made ODI in the foreign entity + has control in said foreign entity. FC by way of Debt: Indian entity may lend or invest in debt instruments of a foreign entity backed by a loan agreement and rate of interest should be charged on an Arm’s Length Basis. Accordingly, interest free loan would not be possible. FC by way of Guarantee: (to subsidiary or any step down subsidiary in which the Indian entity has acquired control through the foreign entity)These guarantees can be – corporate or performance guarantees by the Indian entity or a group company (wherein India entity holds >51%) or a promoter group company, personal guarantee by resident individual promoter, bank guarantee issued by a bank in India and backed by a counter-guarantee or collateral by Indian entity or group company given by the Promoter Company / group company / sister concern / associate company in India. The amount and period of guarantee should be specified upfront and cannot be open-ended. Form FC will have to be filed with RBI for all guarantees given. All the guarantees will be considered while computing the overall limit of 400% of the net worth. However, in case of performance guarantees, 50% of the amount of guarantee shall be reckoned towards financial commitment limit. FC by way of Pledge/Charge: Only an Indian entity has been permitted to undertake a pledge or create a charge on assets with the prerequisite of having ODI by way of equity capital in that foreign entity. Summarily: Security by Indian entity In whose favour Facility availed Amount reckoned towards financial commitment A) Pledge the equity capital of the foreign entity /its SDS outside India. AD bank or a public financial institution in India or an overseas lender. Fund/non-fund based facilities for Indian entity. Nil. Fund/non-fund based facilities for any foreign entity/its SDSs outside India. The value of the pledge or the amount of the facility, whichever is less. A debenture trustee registered with SEBI in India. Fund based facilities for Indian entity. Nil.

FEMA and International Taxation 5.38 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication B) Create charge on its assets (other than A above) in India [including the assets of its group company or associate company, promoter and / or director]. AD bank or a public financial institution in India or an overseas lender. Fund/non-fund based facility for any foreign entity/its SDS outside India The value of charge or the amount of the facility, whichever is less Overseas or Indian lender. fund/non-fund based facilities for Indian entity. Nil. C) Create charge on the assets outside India of the foreign entity/ its SDS outside India. An AD bank in India or a public financial institution in India. Fund/non-fund based facility for any foreign entity/its SDS outside India. The value of the charge or the amount of the facility, whichever is less. Fund/non-fund based facility for Indian entity. Nil. a debenture trustee registered with SEBI in India. fund based facilities for Indian entity. Nil. An Indian entity cannot lend directly to its overseas SDS since it does not hold ODI in the SDS directly. Resident Individuals can only invest through instruments that fall under the definition of equity capital and therefore debt and other non-fund based commitments are not permitted by resident individuals. No-Object Certificate A new requirement of No Objection Certificate (NOC) has been brought in through the OI rules. NOC is required to be obtained in cases where any person resident in India • Has an account which is a as NPA • Is classified as a willful defaulter by any bank • Is under investigation by a financial service regulator or CBI or ED or SFIO In case any of the above is applicable, the PRI shall obtain an NOC from the respective bank or authority before making any financial commitment or undertake disinvestment. The saving grace under this new requirement is that in case certificate is not furnished within 60 days of receipt of application, it may be presumed that there is no objection to the proposed transaction. A certificate in Form FC by statutory auditor needs to certify that the NOC requirement has been complied with. Deferred Payment Arrangement Acquisition or transfer of foreign equity capital on deferred payment arrangement terms is now permitted. Payment of amount for consideration for i) equity capital by way of subscription to an issue or ii) by way of purchase from a person resident outside India or iii) where a person resident outside India acquires equity capital by way of purchase from a person resident in India, may be deferred for such definite period from the date of the agreement as provided in such agreement. However, definite period has not been defined under the rules. Further conditions applicable to deferred payment include: (i) the foreign securities equivalent to the amount of total consideration shall be transferred or issued, as the case may be, upfront by the seller to the buyer. This could be considered similar to concept of partly paid shares in Companies Act 2013 wherein the shares are issued to the shareholder.

Foreign Exchange Management Act, 1999 5.39 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication (ii) the full consideration finally paid shall be compliant with the applicable pricing guidelines therefore the valuation report needs to be obtained and submitted upfront at the time of reporting the deferment in Form FC. (iii) the deferred part of the consideration in case of acquisition of equity capital of a foreign entity by a person resident in India shall be treated as non-fund based commitment. Subsequent payments towards deferred consideration shall be reported in Form FC as conversion of non-fund based financial commitment to equity. Investment by Indian Entity 1. Investment to be made for the purpose of undertaking bonafide business activities 2. ODI can be by way of: a. Subscription to MoA or purchase of equity capital b. Acquisition through bidding or tender procedure c. Acquisition of equity capital by way of rights or bonus d. Capitalisation e. Swap of securities f. Merger/demerger/amalgamation or any scheme of arrangement 3. ODI in financial services activities is permitted a. By an Indian entity in financial services, in a foreign entity engaged in financial services subject to net profit requirements and regulatory approvals b. By an Indian entity not engaged in financial services, in a foreign entity engaged in financial services (except banking and insurance) subject to net profit requirements. Relaxation to certain conditions in the net profit requirement has been provided for FY 2020-21 & FY 2021-22 due to Covid 19 impact Foreign entity shall be considered to be engaged in the business of financial services activity if it undertakes an activity, which if carried out by an entity in India, requires registration with or is regulated by a financial sector regulator in India 4. Total financial commitment by an Indian enity in all foreign entities taken together shall not exceed 400% of its net worth as on the date of last audited balance sheet 5. Total financial commitment shall not include capitalization of retained earnings (i.e. bonus issue) 6. However, total financial commitment shall include utilation of the amount raised by ADRs or GDRs or stock-swaps of such receipts and utilization of proceeds from ECB 7. OPI can be undertaken upto maximum 50% of its networth as on last audited balance sheet date by a. Listed Indian company (including by way of reinvestment) b. Unlisted Indian company by way of acquisition of equity capital by way of rights or bonus, capitalization, swap of securities, merger/demerger/ amalgamation or any scheme of arrangement only Investment by Resident Individual 1. Investment can be made subject to overall LRS limit of USD 250,000 2. ODI can be made in an operating entity not engaged in financial services + which does not have a subsidiary or step down subsidiary (where resident induvial has control in the foreign entity

FEMA and International Taxation 5.40 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication 3. OPI can be made by resident individual (including by way of reinvestment). Based on the definition of OPI explained above, OPI is possible only in listed entities only. 4. Depending on the category of investment, resident individual can invest by way of ODI or OPI in the following cases: a. Capitalization of dues b. Swap of securities on account of merger, demerger, amalgamation or liquidation c. Acquisition of equity capital through rights issue or bonus shares d. Gift (explained below) e. Inheritance f. Acquisition of sweat equity shares g. Acquisition of minimum qualification shares for holding management position in foreign entity h. Acquisition of shares or interest under ESOP or EBS Note: i) Relaxation of restriction has been provided for ODI in case of inheritance, sweat equity, qualification shares and ESOP/ EBS in a foreign entity having step down subsidiary or engaged in financial services. ii) Acquisition of less than 10% of equity capital in a listed or unlisted foreign entity would be treated as OPI in case of sweat equity, qualification shares and ESOP/EBS. 5. Acquisition by way of gift or inheritance i) RI is allowed to acquire foreign securities by way of gift from another PRI who is a relative as defined under the provisions of the Act. ii) RI is allowed to acquire foreign securities from a PROI provided its in accordance with FCRA Rules and Regulations. It is expressly clarified that resident individuals are not permitted to transfer any overseas investment by way of gift to a PROI. 6. Investments by Employees Sr. No. Type of Employee RBI Limits Remarks 1. Employee or Director in India of an Indian office or branch of a foreign company or of a subsidiary in India of foreign company or of an Indian company in which overseas entity has direct or indirect holding may acquire equity shares or interest under ESOP or EBS or swear equity shares No Limit ESOP/EBS should be offered by the issuing overseas entity globally on a uniform basis 2. RI may acquire ESOP under any scheme of Central Government Investment by PRI other than Indian entity and resident individual 1. Registered Trusts and Societies engaged in hospital sector or which has set up hospitals in India can invest in a foreign entity, in the same sector and been in existence for more than three years

Foreign Exchange Management Act, 1999 5.41 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication along with other procedural conditions, after obtaining prior permission of RBI. 2. OI by Mutual Funds or Venture Capital Funds or Alternative Investment Funds is permitted to acquire or transfer foreign securities as stipulated by SEBI. It is provided that the aggregate investment limits shall be prescribed by RBI whereas the individual investment limits shall be prescribed by SEBI. 3. Specific rules are notified for opening demat accounts by clearing corporations and for acquisition and transfer of foreign securities by domestic depositories 4. AD banks including its overseas branch are permitted to acquire or transfer foreign securities in accordance with the terms of the host country or host jurisdiction, in the normal course of its banking business. Investment by PRI International Financial Services Centre (IFSC) 1. Newly inserted category of investment by PRI. PRI is permitted to invest in IFSC in accordance with the other Schedules mentioned above. 2. Conditions and relaxations applicable: a. the approval by the financial services regulator concerned, wherever applicable, shall be decided within fortyfive days from the date of application (complete in all respects) failing which it shall be deemed to be approved b. If the Indian entity is not engaged in FS activity in India and is undertaking ODI in foreign entity directly/ indirectly engaged in FS activity (except banking/ insurance), such an entity is permitted to make ODI in IFSC even when it does not meet the net profit condition c. PRI is permitted to make OPI as a contribution to an investment fund or vehicle setup in an IFSC d. Resident Individual is permitted to make ODI in a foreign entity (even engaged in financial services activity) in IFSC if such entity does not have subsidiary or stepdown subsidiary o/s IFSC in case where the resident individual has control in the foreign entity e. The FEM OI Directions has also liberalized the condition of requiring foreign entity to be an operating entity, with the exception of investment in banking and insurance which still remains restricted Pricing Guidelines The pricing guidelines under new OI framework has been completely changed. The new pricing guideline provides that issue or transfer of equity capital of a foreign entity from a PROI or a PRI to a PRI or from a PRI to a PROI shall be subject to a price arrived on an arm’s length basis as per any internationally accepted pricing methodology. The OI Rules does not state who can provide the valuation certificate. The FEM (OI) Directions, 2022 has provides that AD banks shall formulate a board approved policy for documents related to pricing. AD banks are yet to provide their internal board approved policy in the public domain. Transfer or Liquidation The RBI has removed the requirement of approval in cases of write-off on account of disinvestment. The only requirement that has persisted is that the transferor is required to stay invested in the foreign entity for at least 1 year from the date of making ODI before making any transfer/ liquidation in the overseas entity. In case of full disinvestment (other than liquidation) is permitted only when there are no equity/debt outstanding dues. The condition of repatriation of outstanding dues was present in the erstwhile FEMA 120 but was applicable to all kinds of dues. This has now been restricted to dues that arise on account of investment in equity

FEMA and International Taxation 5.42 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication or debt i.e. excludes other dues such as export receivables. The term ‘disinvestment’ was not defined in the erstwhile ODI regulations. The term has been defined in the OI regulations to mean partial or full extinguishment of right, title or possession of equity capital acquired under these rules. General Guidelines 1. A PRI making overseas Investment may make payment through the following modes: a. by remittance made through banking channels b. from funds held in an account maintained in accordance with the provisions of the Act such as EEFC A/c, Foreign Currency Account c. by swap of securities d. by using the proceeds of ADR or GDR or stock swap of such receipts or ECB raised in accordance with the provisions of the Act and the rules and regulations made thereunder for making ODI or financial commitment by way of debt by an Indian entity 2. Overseas investment by Cash is not permitted. 3. Share certificates/any other relevant documents as evidence of investment, should be submitted within six months from the date of investment. 4. ODI shall be undertaken from one designated AD bank and all transactions should be routed through the same AD in relation to a UIN. Where more than one PRI is investing in a foreign entity, all such persons would need to route the transactions for that UIN from the same AD Bank. 5. PRI should realize and repatriate all dues receivable with respect to the investment within 90 days of it falling due. 6. RBI should realize and repatriate the amount of consideration on account of transfer or disinvestment within 90 days of date of transfer/disinvestment (or actual date of distribution of assets by official liquidator) 7. A PRI who has made a financial commitment in a foreign entity shall not be permitted to make any further financial commitment, whether fund-based or non-fund-based, directly or indirectly till any delay in reporting is regularized. Annual Performance Report – A PRI undertaking ODI should submit an Annual Performance Report (APR) through the designated AD, along with Audited Annual Accounts, Directors’ Report of the Overseas Company, on or before December 31 every year for reporting pre/ post commencement of commercial operation. – APR is exempted where a PRI holds less than 10% equity capital without control in the foreign entity and there is no other financial commitment in the entity – APR is also exempted in cases where the foreign entity is under liquidation – In case the law of the host country does not provide for mandatory auditing of the books of accounts of the foreign entity, the PRI, not having control in the foreign entity, may submit the APR based on the un-audited annual accounts along with certificate of statutory auditor of the Indian entity or certified by the CA. – In case more than one PRI has invested in the same foreign entity, the person having highest stake is required to submit APR. In case of equal stake, the APR should be submitted jointly – Post investment changes during the reporting period such as acquisition or setting up or winding up or transfer of step down subsidiary or alteration of shareholding pattern in foreign entity should be reported in the APR

Foreign Exchange Management Act, 1999 5.43 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Foreign Currency Account of Indian Party An Indian party is permitted to open, hold and maintain a Foreign Currency Account (FCA) abroad for the purpose of overseas direct investments (ODI) if the host country regulations stipulate that investments into the country must be routed through a designated account in that country. This account can be used only for overseas investments in foreign entity under ODI and receipt of entitlements from such investments should be repatriated to India within 30 days from date of credit. Normal procedure for repatriation of investment income and closure of bank account upon divestment will apply. Reporting of Overseas Investment Particulars Name of Form/ Document Period in which to be Reported Where to submit Application for investment under Approval Route Relevant sections of Form FC along with 1. Background and brief details of transaction 2. Reasons for seeking approval 3. Observations of the AD bank & Recommendations of the AD bank on: • Viability of the foreign entity • Benefits to accrue to India thru investment • Financial position & track record of Indian and Foreign entity 4. Board resolution 5. Incorporation certificate and valuation certificate of overseas entity (if applicable) 6. Diagrammatic representation of organizational structure of the entity Prior Approval To RBI through AD Investment under Automatic Route Form FC – Section A to Section E To be submitted prior to the investment To RBI through AD Intimation of changes Post Investment In Form APR 31st December To RBI through AD

FEMA and International Taxation 5.44 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Particulars Name of Form/ Document Period in which to be Reported Where to submit Closure/ Disinvestment/ Voluntary Liquidation/ Winding up of foreign entity Form FC – Section G Within 30 days of receipt of disinvestment proceeds* * disinvestment proceeds are to be received with 90 days of disinvestment To RBI through AD Annual Performance Report (APR) Form APR along with 1. Audited Financials of overseas entity 2. Certificate from Statutory Auditor/ CA On or Before 31st December every year for preceding year ended on 31st March. To RBI through AD Capitalisation of Export proceeds or other Entitlements, which are overdue Form FC Prior Approval of The Reserve Bank. To RBI through AD Restructuring Form FC Section F Within 30 days of Restructuring. To RBI through AD Acquisition by rights issue Form FC – relevant sections (Renunciation of rights in favor of PRII or PROI does not require any reporting) To be submitted prior to the investment To RBI through AD Bonus shares shall not be treated as fresh financial commitment therefore no reporting needed Making or transferring Overseas Portfolio Investments (By PRI other than resident individual i.e. Listed Company, Mutual Fund, AIF, VCF and ESOP reporting) Form OPI Within 60 days of the end of the half year (i.e. September or March) in which investment or transfer is made To RBI through AD Reporting of Foreign Liabilities and Assets (By Indian entities only) Form FLA By 15th July every year To Department of Statistics and Information Management (DSIM), RBI On FLAIR website

Foreign Exchange Management Act, 1999 5.45 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Late Submission Fee The OI Regulations provides for payment of Late Submission Fee (LSF) for reporting delays in case of Overseas Investment with effect from 22nd August, 2022. The option is available for delayed filings up to 3 years from due date of reporting/submission. As a special dispensation, LSF option is also made available for delayed reporting/submissions under erstwhile FEMA Notification 120/2004-RB upto 3 years from OI regulations i.e. upto 22nd August 2025. The LSF matrix provided by RBI is as follows: Sr. No. Type of Reporting delays LSF Amount (INR) 1. Form ODI Part II /APR, FLA Returns, Form OPI 7500 2. Form ODI Part I, Form ODI Part III [7500 + (0.025% x A x n)] Notes: a. “n” is the number of years of delay in submission rounded-upwards to the nearest month and expressed up to 2 decimal points. b. “A” is the amount involved in the delayed reporting. c. LSF amount is per return. d. Maximum LSF amount will be limited to 100 per cent of ‘A’ and will be rounded upwards to the nearest hundred. (11) Liberalised Remittance Scheme (LRS) An individual resident in India is permitted to remit outside India up to US $ 250,000 per financial year for any legal and lawful purpose (permitted current or capital account transaction or a combination of both) without obtaining prior permission of RBI. An illustrative list of the permitted activities is as follows: – Remittance towards gift (including gift by way of credit to the NRO account in India of the overseas relative) and donation, or – Non-business related travel overseas – Business travel, if the visits are for international conference, seminars, etc. – Acquisition of a property abroad – Investment in overseas companies – ODI or OPI – Opening of a bank account outside India – Emigration or employment abroad – Students pursuing their education abroad – Medical treatment abroad – Investment in International Financial Service Centre (IFSC) Even minors are eligible under this scheme but the LRS form needs to be countersigned by the minor’s natural guardian. However, remittance facility under the Scheme cannot be used for the following: – Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery tickets/sweep stakes, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000 – A resident cannot gift to another resident, in foreign currency, for the credit of the latter’s foreign currency account held abroad under LRS. – Remittance from India for margins or margin calls to overseas exchanges / overseas counterparty – Capital account remittances, directly or indirectly to countries identified by the Financial Action Task Force (FATF) as “nonco-operative countries and territories”, from time-to-time

FEMA and International Taxation 5.46 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication – Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks. Investor, who has remitted funds under LRS can retain, reinvest the income earned on the investments. The received/realised/unspent/unused foreign exchange, unless reinvested, shall be repatriated and surrendered to AD within a period of 180 days from the date of such receipt/ realisation/ purchase/ acquisition or date of return to India. Tax Collected at Source on LRS – Section 206C(1G) Birds Eye View of TCS Provisions on LRS Today Sr. No. Purpose of remittance Nature Present rate (up to 30th June 2023) Proposed Rate (From 1st July 2023) Threshold Rate Threshold Rate 1. Any Education Loan obtained from any Financial Institution defined in sec 80E 7 Lakhs 0.5% 7 Lakhs 0.5% Not obtained from Financial Institution 7 Lakhs 5% 7 Lakhs 5% 2. Medical Treatment 7 Lakhs 5% 7 Lakhs 5% 3. Tour Package Purchase of a Tour Package Nil 5% *Nil 20% 4. Any other remittance For e.g. Bonds, shares, real estate, gifts etc 7 Lakhs 5% *Nil 20% * payments by an individual using their international Debit or Credit cards upto Rs 7 lakh per financial year will be excluded from the LRS limits and will not attract any TCS. (12) Cross Border Merger Regulations Section 234 of the Companies Act, 2013, Ministry of Corporate Affairs had issued Companies (Compromises, Arrangements and Amalgamation) Amendment Rules, 2017 on April 13, 2017 to operationalise this section. To address FEMA issues, RBI on 26th April, 2016 placed on its website the draft guidelines for cross-border merger, demerger, amalgamation and arrangement between Indian companies and foreign companies pursuant to the Rules notified by MCA which have now been notified as “Foreign Exchange Management (Cross Border Merger) Regulations.