*See Volume 2.
*See Volume 2.
*See Volume 2.
FOREIGN EXCHANGE MANAGEMENT (CURRENT ACCOUNT TRANSACTIONS) RULES, 2000*
GSR 381(E), dated 3-5-2000 - In exercise of the powers conferred by section 5 and sub-section (1) and clause (a) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999, and in consultation with the Reserve Bank, the Central Government having considered it necessary in the public interest, makes the following rules, namely :—
Short title and commencement.
1. (1) These rules may be called the Foreign Exchange Management (Current Account Transactions) Rules, 2000.
(2) They shall come into effect on the 1st day of June, 2000.
Definitions.
2. In these rules, unless the context otherwise requires,—
(a)“Act” means the Foreign Exchange Management Act, 1999 (42 of 1999);
(b)“Drawal” means drawal of foreign exchange from an authorised person and includes opening of Letter of Credit or use of International Credit Card or International Debit Card or ATM Card or any other thing by whatever name called which has the effect of creating foreign exchange liability;
(c)“Schedule” means a schedule appended to these rules;
(d)the words and expressions not defined in these rules but defined in the Act shall have the same meanings respectively assigned to them in the Act.
Prohibition on drawal of Foreign Exchange.
3. Drawal of foreign exchange by any person for the following purpose is prohibited, namely:
(a)a transaction specified in the Schedule I; or
(b)a travel to Nepal and/or Bhutan; or
(c)a transaction with a person resident in Nepal or Bhutan :
Provided that the prohibition in clause (c) may be exempted by RBI subject to such terms and conditions as it may consider necessary to stipulate by special or general order.
Prior approval of Government of India.
4. No person shall draw foreign exchange for a transaction included in the Schedule II without prior approval of the Government of India :
*MASTER DIRECTIONS : Liberalized Remittance Scheme (LRS) [No. 7/2015-16, dated 1-1-2016]; Other Remittance Facilities [No. 8/2015-16, dated 1-1-2016]; Export of Goods & Services [No. 16/2015-16, dated 1-1-2016] and Import of Goods and Services [No. 17/2016-17, dated 1-1-2016].
3.6
3.7 PROHIBITION ON DRAWAL OF FOREIGN EXCHANGE
Provided that this rule shall not apply where the payment is made out of funds held in Resident Foreign Currency (RFC) Account 1[***] of the remitter.
1a[Prior approval of Reserve Bank.
5. Every drawal of foreign exchange for transactions included in Schedule III shall be governed as provided therein:
Provided that this rule shall not apply where the payment is made out of funds held in Resident Foreign Currency (RFC) Account of the remitter.]
2[6. (1) Nothing contained in rule 4 or rule 5 shall apply to drawal made out of funds held in Exchange Earners’ Foreign Currency (EEFC) account of the remitter.
(2) Notwithstanding anything contained in sub-rule (1), restrictions imposed under rule 4 or rule 5 shall continue to apply where the drawal of foreign exchange from the Exchange Earners’ Foreign Currency (EEFC) account is for the purpose specified in items 10* and 11 of Schedule II, or items 3, 4, 11, 16* and 17 of Schedule III as the case may be.]
3[Use of International Credit Card while outside India.
7. Nothing contained in rule 5 shall apply to the use of International Credit Card for making payment by a person towards meeting expenses while such person is on a visit outside India. ]
SCHEDULE I
4[Transactions which are prohibited] (See Rule 3)
1.Remittance out of lottery winnings.
2.Remittance of income from racing/riding, etc., or any other hobby.
3.Remittance for purchase of lottery tickets, banned/prescribed magazines, football pools, sweepstakes etc.
4.Payment of commission on exports made towards equity investment in Joint Ventures/Wholly Owned Subsidiaries abroad of Indian companies.
5.Remittance of dividend by any company to which the requirement of dividend balancing is applicable.
5[6.Payment of commission on exports under Rupee State Credit Route, except commission up to 10% of invoice value of exports of tea and tobacco.]
7.Payment related to “Call Back Services” of telephones.
8.Remittance of interest income on funds held in Non-resident Special Rupee Scheme a/c.
1.Words “or Exchange Earners’ Foreign Currency (EEFC) Account” omitted by the FEM (Current Account Transactions) (Amendment) Rules, 2001, w.e.f. 30-3-2001.
1a.Substituted by the FEM (Current Account Transactions) Amendment Rules, 2015, w.e.f. 26-5-2015. Prior to its substitution, rule 5, as amended by the FEM (Current Account Transactions) (Amendment) Rules, 2001, w.e.f. 30-3-2001, read as under :
“5. Prior approval of Reserve Bank.—No person shall draw foreign exchange for a transaction included in the Schedule III without prior approval of the Reserve Bank :
Provided that this rule shall not apply where the payment is made out of funds held in Resident Foreign Currency (RFC) Account of the remitter.”
2.Inserted by the FEM (Current Account Transactions) (Amendment) Rules, 2001, w.e.f. 30-3-2001
3.Inserted by Notification No. GSR 472(E), dated 30-6-2023, w.r.e.f. 16-5-2023. Earlier, rule 7 was inserted by the FEM (Current Account Transactions) (Amendment) Rules, 2003, w.e.f. 15-1-2003 and later on omitted by the FEM (Current Account Transactions) (Amendment) Rules, 2023, w.e.f. 16-5-2023 For clarification on amendment see Annex to this Rules.
4.Inserted by the FEM (Current Account Transactions) (Amendment) Rules, 2005, w.e.f. 27-7-2005.
5.Substituted by the FEM (Current Account Transactions) (Second Amendment) Rules, 2003, w.e.f. 1-5-2003. *‘10’ & ‘16’ need to be omitted.
SCHEDULE II
6[Transactions which require prior approval of the Central Government ] (See Rule 4)
Purpose of Remittance Ministry/Department of Govt. of India whose approval is required
1.Cultural Tours Ministry of Human Resources Development (Department of Education and Culture)
2. 7[Advertisement in foreign print media for theMinistry of Finance, Department of Ecopurposes other than promotion of tourism,nomic Affairs] foreign investments and international bidding (exceeding US$ 10,000) by a State Government and its Public Sector Undertakings.
3.Remittance of freight of vessel charted by aMinistry of Surface Transport (CharterPSU ing Wing)
4.Payment of import 8[through ocean transport]Ministry of Surface Transport (Charterby a Govt. Department or a PSU on c.i.f. basising Wing) (i.e., other than f.o.b. and f.a.s. basis)
5.Multi-modal transport operators making remit-Registration Certificate from the Director tance to their agents abroad General of Shipping
9[6.Remittance of hiring charges of transponders by (a)TV Channels Ministry of Information and Broadcasting (b)Internet service providers Ministry of Communication and Information Technology]
7.Remittance of container detention chargesMinistry of Surface Transport (Director exceeding the rate prescribed by DirectorGeneral of Shipping) General of Shipping
8. 10[***] 10[***]
9.Remittance of prize money/sponsorship ofMinistry of Human Resource Developsports activity abroad by a person other thanment (Department of Youth Affairs and International/National/State Level sportsSports) bodies, if the amount involved exceeds US $ 100,000
10. 11[***]
11.Remittance for membership of P & I ClubMinistry of Finance (Insurance Division)
6.Inserted by the FEM (Current Account Transactions) (Amendment) Rules, 2005, w.e.f. 27-7-2005.
7.Item 2 substituted by the FEM (Current Account Transactions) (Amendment) Rules, 2001, w.e.f. 30-3-2001. Earlier item 2 was amended by the FEM (Current Account Transactions) (Amendment) Rules, 2000, w.e.f. 9-8-2000.
8.Inserted by the FEM (Current Account Transactions) (Fourth Amendment) Rules, 2003, w.e.f. 27-10-2003.
9.Inserted by the FEM (Current Account Transactions) (Amendment) Rules, 2004, w.e.f. 13-9-2004. Prior to its insertion, item 6 was omitted by the FEM (Current Account Transactions) (Amendment) Rules, 2002, w.e.f. 22-10-2002.
10.Omitted by the FEM (Current Account Transactions) (Amendment) Rules, 2010, w.r.e.f. 16-12-2009. Prior to its omission, item 8 read as under :
“8.Remittances under technical collaboration agreements Ministry of Industry and where payment of royalty exceeds 5% on local sales andCommerce” 8% on exports and lump sum payment exceeds US $ 2 million
11.Omitted by the FEM (Current Account Transactions) (Amendment) Rules, 2004, w.e.f. 13-9-2004.
Facilities for individuals
12[SCHEDULE III
(See rule 5)
1. Individuals can avail of foreign exchange facility for the following purposes within the limit of USD 2,50,000 only. Any additional remittance in excess of the said limit for the following purposes shall require prior approval of the Reserve Bank of India :
(i)Private visits to any country (except Nepal and Bhutan).
(ii)Gift or donation.
(iii)Going abroad for employment.
(iv)Emigration.
(v)Maintenance of close relatives abroad.
(vi)Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/check-up.
(vii)Expenses in connection with medical treatment abroad.
(viii)Studies abroad.
(ix)Any other current account transaction:
Provided that for the purposes mentioned at item numbers (iv), (vii) and (viii), the individual may avail of exchange facility for an amount in excess of the limit prescribed under the Liberalised Remittance Scheme as provided in regulation 4 to FEMA Notification 1/2000-RB, dated the 3rd May, 2000 (hereinafter referred to as the said Liberalised Remittance Scheme) if it is so required by a country of emigration, medical institute offering treatment or the university, respectively:
Provided further that if an individual remits any amount under the said Liberalised Remittance Scheme in a financial year, then the applicable limit for such individual would be reduced from USD 250,000 (US Dollars Two Hundred and Fifty Thousand Only) by the amount so remitted:
Provided also that for a person who is resident but not permanently resident in India and—
(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 of a foreign company or subsidiary or joint venture in India of such foreign company, may make remittance up to his net salary (after deduction of taxes, contribution to provident fund and other deductions).
Explanation: For the purpose of this item, a person resident in India on account of his employment or deputation of a specified duration (irrespective of length thereof) or for a specific job or assignments, the duration of which does not exceed three years, is a resident but not permanently resident:
12.Substituted by the FEM (Current Account Transactions) Amendment Rules, 2015, w.e.f. 26-5-2015. Earlier, Schedule III was amended by the FEM (Current Account Transactions) (Amendment) Rules, 2009, w.r.e.f. 30-4-2007, FEM (Current Account Transactions) (Amendment) Rules, 2009, w.r.e.f. 20-12-2006, FEM (Current Account Transactions) (Amendment) Rules, 2006, w.e.f. 10-7-2006, FEM (Current Account Transactions) (Amendment) Rules, 2004, w.e.f. 13-9-2004, FEM (Current Account Transactions) (Second Amendment) Rules, 2003, w.e.f. 1-5-2003, FEM (Current Account Transactions) (Third Amendment) Rules, 2003, w.e.f. 5-9-2003, FEM (Current Account Transactions) (Amendment) Rules, 2002, w.e.f. 22-10-2002, FEM (Current Account Transactions) (Second Amendment) Rules, 2002, w.e.f. 17-12-2002 and FEM (Current Account Transactions) (Amendment) Rules, 2001, w.e.f. 30-3-2001.
Provided also that a person other than an individual may also avail of foreign exchange facility, mutatis mutandis, within the limit prescribed under the said Liberalised Remittance Scheme for the purposes mentioned hereinabove.
Facilities for persons other than individual
2. The following remittances by persons other than individuals shall require prior approval of the Reserve Bank of India :
(i)Donations exceeding one per cent of their foreign exchange earnings during the previous three financial years or USD 5,000,000, whichever is less, for—
(a)creation of Chairs in reputed educational institutes,
(b)contribution to funds (not being an investment fund) promoted by educational institutes; and
(c)contribution to a technical institution or body or association in the field of activity of the donor Company.
(ii)Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India exceeding USD 25,000 or five per cent of the inward remittance whichever is more.
(iii)Remittances exceeding USD 10,000,000 per project for any consultancy services in respect of infrastructure projects and USD 1,000,000 per project, for other consultancy services procured from outside India.
Explanation:—For the purposes of this sub-paragraph, the expression “infrastructure” shall mean as defined in Explanation to para 1(iv)(A)(a) of Schedule I of FEMA Notification 3/2000RB, dated the May 3, 2000.
(iv)Remittances exceeding five per cent of investment brought into India or USD 100,000 whichever is higher, by an entity in India by way of reimbursement of pre-incorporation expenses.
Procedure
3. The procedure for drawal or remit of any foreign exchange under this Schedule shall be the same as applicable for remitting any amount under the said Liberalised Remittance Scheme.]
ANNEX I
RBI PRESS RELEASE, DATED 19-5-2023
Part A - Some clarifications on Tax Collection at Source (Not reproduced. Log on to www.taxmann.com)
Part B - Clarifications on the Liberalized Remittance Scheme
[Rule 7: Omission by FEM (Current Account Transactions) (Amendment) Rules, 2023, w.e.f. 16-5-2023]
1. What is the notification dated 16th May, 2023 amending the FEM (CAT) Rules, 2000?
The notification dated 16th May, 2023 omits Rule 7 of the FEM (CAT) Rules, 2000. In effect, it removes the exemption given to the use of international credit cards for meeting his/her expenses by a person when he is abroad. Even earlier, all current account transactions undertaken on international credit cards in India were subject to Rule 5 of the FEM (CAT) Rules and covered under Liberalized Remittance Scheme (LRS). The notification dated 16th May, 2023 does not effect any changes in the use of international credit cards by residents while in India.
2. What is Rule 7 of FEM (CAT) Rules, 2000?
Rule 7 of the FEM (CAT) Rules, 2000 exempted the use of international credit cards from the LRS for payments by a person towards meeting expenses while such a person is on a visit outside India.
3. What was the need for the notification?
While on a visit abroad, a person could use international debit cards or other methods or international credit cards for undertaking current account transactions. Payments by debit cards etc. have been treated as LRS even earlier. Due to the exemption under erstwhile Rule 7, expenditures through credit cards were not accounted for under the specified LRS limit, which has led to some individuals exceeding the LRS limits. Data collected from top money remitters under LRS reveals that international credit cards are being issued with limits in excess of the present LRS limit of USD 2,50,000. The differential treatment between debit cards and credit cards needed to be removed in the interest of uniformity and equity in the treatment of modes of drawal of foreign exchange and for capturing total expenditures under LRS for prudent foreign exchange management and to prevent by-passing of LRS limits.
RBI had written to the government on more than one occasion, pointing to the need to remove this differential treatment.
4. What modes of expenditure of foreign exchange are covered under FEM (CAT) Rules, 2000?
It includes the drawal of foreign exchange from an authorised person and use of an International Credit Card, International Debit Card or ATM Card. All such drawals for the purposes specified in Schedule III (as explained in FAQ 3 above) are eligible for the limit of US$ 2,50,000.
5. What are the purposes under FEM (CAT) Rules, 2000, under which a resident individual can avail of a foreign exchange facility?
As per Rule 5 of the FEM (CAT) Rules, 2000, Individuals can avail of a foreign exchange facility for the following purposes, as detailed in Schedule III of the Rules, within the LRS limit of USD 2,50,000 on a financial year basis. Prior approval of the Reserve Bank would be required for remittances exceeding the specified limits.
i. Private visits to any country (except Nepal and Bhutan)
ii. Gift or donation
iii. Going abroad for employment
iv. Emigration
v. Maintenance of close relatives abroad
vi. Travel for business, attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as an attendant to a patient going abroad for medical treatment/ check-up
vii. Expenses in connection with medical treatment abroad
viii. Studies abroad
ix. Any other current account transaction
The Master Direction of RBI on LRS, available at https://www.rbi.org.in/Scripts/BS ViewMasDirections.aspx?id=10192 may be referred to.
6. Does LRS cover business visits of employees?
No. When an employee is being deputed by an entity for any of the above, and the expenses are borne by the latter, such expenses shall be treated as residual current account transactions outside LRS and may be permitted by the AD without any limit, subject to verifying the bona fide of the transaction.
7. What is Liberalised Remittance Scheme (LRS)?
Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April - March) for any permissible current or capital account transaction or a combination of both. Further, resident individuals can avail of foreign exchange facility for the purposes mentioned in Para 1 of Schedule III of FEM (CAT) Rules, 2000 within the limit of USD 2,50,000 only. The Scheme is not available to corporates, partnership firms, HUF, Trusts etc.
Under the LRS, in the financial year 2021-22, a total of USD 19.61 billion was remitted, rising from USD 12.68 billion in 2020-21. In 2022-23, it rose to more than USD 24.0 billion, of which overseas travel accounted for more than half.
8. What is a current account transaction?
As per FEMA 1999, a “current account transaction” means a transaction other than a capital account transaction and without prejudice to the generality of the foregoing, such transaction includes, (i)payments due in connection with foreign trade, other current business, services, and shortterm banking and credit facilities in the ordinary course of business, (ii)payments due as interest on loans and as net income from investments, (iii)remittances for living expenses of parents, spouse and children residing abroad, and (iv)expenses in connection with foreign travel, education and medical care of parents, spouse and children.
ANNEX II
No change in rate of TCS for all purposes under LRS and for overseas travel tour packages, regardless of mode of payment, for amounts up to Rs. 7 lakh per individual per annum Government gives more time for implementation of revised TCS rates and for inclusion of credit card payments in LRS
Increased TCS rates to apply from 1st October, 2023
RBI PRESS RELEASE, DATED 28-6-2023
In the Budget this year, certain changes were announced to the system of Tax Collection at Source (TCS) on payments under the Liberalised Remittance Scheme (LRS) and on overseas tour program packages. These were to take effect from 1st July, 2023. It was also announced in March that credit card payments would be brought under the LRS. Numerous comments and suggestions were received which have been carefully considered.
In response to the comments and suggestions it has been decided to make suitable changes. Firstly, it has been decided that there will be no change in the rate of TCS for all purposes under LRS and for overseas travel tour packages, regardless of mode of payment, for amounts up to Rs. 7 lakh per individual per annum. It has also been decided to give more time for the implementation of the revised TCS rates and for inclusion of credit card payments in LRS. The changes are detailed below.
Sub-section (1G) of section 206C of the Income-tax Act, 1961 (“the Act”) provides for Tax Collection at Source (TCS) on (i) foreign remittance through the Liberalised Remittance Scheme (LRS) and ( ii) sale of overseas tour program package.
Through the Finance Act, 2023, amendments were carried out in sub-section (1G) of section 206C of the Act. These amendments, inter alia, increased the rate of TCS from 5% to 20% for remittance
under LRS as well as for purchase of overseas tour program package and removed the threshold of Rs. 7 lakh for triggering TCS on LRS. These two changes were not applicable when the remittance is for education or medical purpose. These amendments were to take effect from 1st July, 2023.
The Government had notified Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2023 vide an e-gazette notification dated 16th May, 2023 to remove the differential treatment for credit cards vis-à-vis other modes of drawal of foreign exchange under LRS.
After discussions with various stakeholders, and taking into account comments and suggestions received, the following decisions have been taken:
(i)To give adequate time to Banks and Card networks to put in place requisite IT based solutions, the Government has decided to postpone the implementation of its 16th May, 2023 e-gazette notification. This would mean that transactions through International Credit Cards while being overseas would not be counted as LRS and hence would not be subject to TCS. The Press Release dated 19th May, 2023 stands superseded.
(ii) Threshold of Rs. 7 Lakh per financial year per individual in clause (i) of sub-section (1G) of section 206C shall be restored for TCS on all categories of LRS payments, through all modes of payment, regardless of the purpose: Thus, for first Rs. 7 Lakh remittance under LRS there shall be no TCS. Beyond this Rs. 7 Lakh threshold, TCS shall be
(a)0.5% (if remittance for education is financed by education loan);
(b)5% (in case of remittance for education/medical treatment);
(c)20% for others.
For purchase of overseas tour program package under clause (ii) of sub-section (1G), the TCS shall continue to apply at the rate of 5% for the first Rs. 7 lakhs per individual per annum; the 20% rate will only apply for expenditure above this limit.
(iii)Increased TCS rates to apply from 1st October, 2023: The increase in TCS rates; which were to come into effect from 1st July, 2023 shall now come into effect from 1st October, 2023 with the modification as in (ii) above. Till 30th September, 2023, earlier rates (prior to amendment by the Finance Act, 2023) shall continue to apply.
Earlier and new TCS rates are summarised as under:
Nature of payment
Earlier rate before Finance
New rate w.e.f. 1st Act, 2023 October 2023 (1) (2) (3)
LRS for education financedNil upto Rs. 7 lakh
Nil upto Rs. 7 lakh by loan 0.5% above Rs. 7 Lakh 0.5% above Rs. 7 Lakh
LRS for Medical treatment/Nil upto Rs. 7 lakh
Nil upto Rs. 7 lakh education (other than finan-5% above Rs. 7 Lakh 5% above Rs. 7 Lakh ced by loan)
LRS for other purposesNil upto Rs. 7 lakh
Nil upto Rs. 7 lakh 5% above Rs. 7 Lakh 20% above Rs. 7 Lakh
Purchase of Overseas tour5% (without threshold)
5% till Rs. 7 Lakh, 20% program package thereafter
Note:
(i)TCS rate in column two shall continue to apply till 30th September, 2023. 3.13
(ii)There shall be no TCS on expenditures under LRS under clause (i) of sub-section (1G) for the first Rs. 7 lakh, irrespective of purpose.
The necessary changes to the Rules (Foreign Exchange Management (Current Account Transactions) Rules, 2000) are being issued separately.
Legislative amendment in this regard shall be proposed in due course. Circular and Frequently Asked Questions (FAQs) shall be issued to clarify various practical issues in implementing this provision.
