Banks offer two types of accounts to NRIs, based on their repatriablity.

Funds that can be transferred or repatriated abroad are maintained in a Non Resident External Bank account. Generally, funds remitted from outside India are credited to this account. Investments made from foreign funds can be repatriated overseas, and such investments are maintained in a Repatriable Demat account.

The interest rates on three year deposits also apply in case the maturity period exceeds three years. The change in interest rate also applies to NRE deposits renewed after their present maturity period.

Banks can allow remittance upto USD 1 million per financial year for bonafide purposes from balances in the NRO accounts once taxes are paid out. This limit includes the sale proceeds of immovable properties held by NRIs and PIOs.

Resident Foreign Currency (RFC) Account
NRIs and PIOs returning to India can maintain  an RFC account with an authorized bank in India to transfer funds from their NRE/FCNR (B) accounts. Proceeds of assets held outside India before their return to India can be credited to the RFC account. These funds are free from all restrictions as to their utilization or in investment in any form outside India.

Non-repatriable funds are those which cannot be taken out of India. These have to be maintained in a separate bank account i.e. a Non Resident Ordinary Bank account.
Investments made from non-repatriable accounts cannot be repatriated but have to be  maintained in a Non-Repatriable Demat account. Money once transferred from an NRE account to an NRO account cannot be transferred back to an NRE account.

However, NRIs, PIOs, Foreign Nationals, retired employees or non-resident widows of Indian citizens can remit, through the Authorised Dealer, up to USD one million per calendar year from the NRO account or from income from sale of assets in India.

Eligibility -

Non Resident Indians (NRIs) and Persons of Indian Origin (PIOs) can open and maintain NRE accounts with authorized dealers and with banks (including co-operative banks) authorized by the Reserve Bank of India (RBI) to maintain such accounts.

The account has to be opened by the Non Resident account holder himself and not by the holder of the power of attorney in India.

 

Opening NRE accounts in the names of individuals/entities of Bangladesh/Pakistan nationality/ownership requires approval of RBI

 

Types of Accounts - Savings, Current, Recurring or Fixed Deposit accounts.

 

Debits & Credits:

Payments for local expenses and investments are allowed freely. Credits to an account, of funds emanating from a local source would be permissible only if the funds are of a repatriable nature.

 

Permitted Credits

 

    * Proceeds of remittances to India can be in any permitted currency.

    * Proceeds of personal cheques drawn by the account holder on his foreign currency account and of travellers cheques, bank drafts payable in any permitted currency including instruments expressed in Indian rupees for which reimbursement will be received in foreign currency, deposited by the account holder in person during his temporary visit to India, provided the authorised dealer/bank is satisfied that the account holder is still resident outside India, the travellers' cheques/drafts are standing/endorsed in the name of the account holder and in the case of travellers' cheques, they were issued outside India.

    * Proceeds of foreign currency/bank notes tendered by account holder during his temporary visit to India, provided

 

      (i) the amount was declared on a Currency Declaration Form (CDF), where applicable, and

      (ii) the notes are tendered to the authorised dealer in person by the account holder himself and the authorised dealer is satisfied that account holder is a person resident outside India.

 

Transfers from other NRE/FCNR Accounts

 

    * Interest accruing on the funds held in the account.

    * Interest on Government securities and dividend on units of mutual funds, provided the securities/units were purchased by debit to the account holder's NRE/FCNR account or out of inward remittance through normal banking channels.

    * Maturity proceeds of Government securities including National Plan/Savings Certificate as well as proceeds of Government securities and units of mutual funds sold on a recognised stock exchange in India and sale proceeds of units received from mutual funds, provided the securities/units were originally purchased by debit to the account holder's NRE/FCNR account or out of remittances received from outside India in free foreign exchange.

    * Refund of share/debenture subscriptions to new issues of Indian companies or portion thereof, if the amount of subscription was paid from the same account or from other NRE/FCNR account of the account holder or by remittance from outside India through normal banking channels.

    * Refund of application/earnest money made by the house building agencies on account of non-allotment of flat/plot, together with interest, if any (net of income-tax payable thereon), provided the original payment was made out of NRE/FCNR account of the account holder or remittance from outside India through normal banking channels and the authorised dealer is satisfied about the genuineness of the transaction.

    * Any other credit if covered under general or special permission granted by Reserve Bank.

 

Permitted Debits

 

    * Local disbursements

    * Remittances outside India

    * Transfer to NRE/FCNR accounts of the account holder or any other person eligible to maintain such account.

    * Investment in shares/securities/commercial paper of an Indian company or for purchase of immovable property in India within prescribed regulations.

    * Any other transaction if covered under general or special permission granted by the Reserve Bank.

 

Rate of Interest - as per the directives of the Reserve Bank of India.

 

Loans against Security of Funds held in the Account

To the account holder

 

i) For personal purposes or for carrying on business activities (except agricultural/plantation activities/investment in real estate business).

ii) For making direct investment in India on non-repatriation basis.

iii) For acquisition of flat/house in India for his own residential use.

In January 2007, the RBI imposed a restriction on loans against deposits and securities for NRIs to a maximum of upto Rs. 20 lakh

 

To third parties

The loan should be utilised for personal purposes or for carrying on business activities (other than agricultural/plantation activities/real estate business). The loan should not be utilized for re-lending.

 

Loans outside India

Authorised dealers may allow their overseas branches/correspondents to grant fund based and/or non-fund based facilities to Non Resident depositors against the security of funds held in the NRE accounts and also agree to remittance of funds from India if necessary, for liquidation of debts.

 

Change of Resident Status of Account Holder

NRE Accounts should be re designated as resident account or the funds held in these accounts may be transferred to the Resident Foreign Currency (RFC) Accounts (if the account holder is eligible for maintaining RFC Account) at the option of the account holder immediately upon the return of the account holder to India (except where the account holder is on a short visit to India).

 

Repatriation of funds to Non Resident Nominee can be permitted by the authorized dealer or bank in the case of an account holder who is deceased.

 

Other Features -

 

    * Joint Accounts - in the names of two or more Non Resident individuals may be opened provided all the account holders are persons of Indian nationality or origin. When one of the joint holder become residents, the authorised dealer may either delete his name or allow the account to continue as NRE account or redesignate the account as resident account at the option of the account holders. Opening of these accounts by a Non Resident jointly with a resident is not permissible.

    * An Account may be opened in the name of eligible NRI during his temporary visit to India.

    * Operation by Power of Attorney - Resident Power of Attorney holder can operate on the NRE accounts but only for local payments to be made on behalf of the account holder. The Power of Attorney (POA) holder cannot credit proceeds of foreign currency notes/bank notes and travellers cheques to the NRE accounts.

 

In cases where the account holder or a bank designated by him has been granted permission by Reserve Bank to make investments in India, the POA holder is permitted to operate the account to facilitate such investments. POA holders cannot, however, make gifts from NRE accounts.

 

Special Series of Cheques -

 

    * Temporary Overdrawing - permitted from NRE Savings Bank account up to Rs. 50,000 for a period not exceeding two weeks.

    * Remittances abroad by Resident nominee - application for meeting the liabilities if any of the deceased account holder or similar other purposes, should be forwarded to RBI for consideration.

    * Tax Exemption - Interest income exempted from income tax, balances held are also exempt from wealth tax.

    * Reporting - Transactions to be reported to the Reserve Bank of India.

Eligibility to Open and Maintain FCNR A/c

With the exception of persons of Indian origin from Bangladesh and Pakistan, all NRIs and PIOs are eligible to maintain an FCNR account with an authorised bank in India.

 

    * Accounts may be opened with funds remitted from outside, existing NRE/ FCNR accounts, etc.

    * Remittances should be in the designated currency.

    * Conversion to currency other than the designated currency also permitted at the risk and cost of the remitter.

 

Features of FCNR Account

 

    * The account can be opened with funds remitted from abroad, or transferred from an existing NRE/FCNR account.

    * FCNR accounts can be opened with designated currencies, which are: GBP, USD, Deutsche Mark, Japanese Yen and the Euro.

    * Conversion to another designated currency is permitted at a cost to the account holder.

    * Only term deposits can be maintained in FCNR accounts, in a time range of 6 months to 3 years.

    * As per RBI guidelines, banks are free to offer interest on FCNR deposits below LIBOR rates, less 25 basis points for deposits between 6 months to one year, and LIBOR rates plus 50 basis points for deposits over a year.

    * Banks are also free to decide on a fixed or a floating rate of interest on FCNR term deposits.

    * Interest rates are reviewed periodically and determined by directives from the Reserve Bank (Department of Banking Operations and Development).

    * The account holder can choose the periodicity of interest, from half-yearly to annual payments. The interest can be credited to a new FCNR (B) account or a NRE/NRO account.

    * For permissible debits and credits, the regulations for FCNR accounts are similar to the NRE accounts.

    * For conversion of currencies, from designated currency to rupees and vice versa, the day’s rate of conversion will apply.

    * Funds from the FCNR account are allowed to move within the country at no extra cost to the account holder.

    * For loans and overdrafts against FCNR accounts, the same conditions as the NRE accounts apply.

    * In case of premature withdrawal of the FCNR Term Deposit, a penalty is levied. Interest paid on the account is calculated at a 1% below the committed rate if accounts are closed prematurely.

    * However, no interest is paid on deposits held for less than 6 months, and a penalty would have to be paid as per directives from the apex bank. The RBI guidelines prevail on these terms, issued as and when required.

 

FCNR A/c after Change in Resident Status

 

    * NRI deposits such as the FCNR can continue till the maturity date at the contracted rate of interest even after the account holder’s resident status changes to resident Indian.

    * However, except for interest rates and reserve requirements of FCNR deposits, these accounts are treated as resident accounts effective from the account holder’s date of return to India.

    * On maturity, these accounts are converted to either an RFC account or the Resident Rupee Deposit account.

    * As for joint accounts, the same rules as those for NRE accounts apply to FCNR deposits too.

   * For repatriation of funds from the FCNR account, the same conditions as those for NRE accounts apply.

    * The RBI does not provide any guarantee on foreign exchange.

 

Other Features -

 

    * Reserve Bank will not provide foreign exchange guarantee.

    * Lending of resources mobilized by authorized dealers under these accounts are not subject to any interest rate stipulations.

Eligibility

 

    * Any person or entity residing outside India is entitled to open a NRO account with an authorised dealer or an authorised bank for transactions conducted in Indian Rupees.

    * Individuals or entities of Bangladeshi or Pakistani nationality or ownership require approval from the RBI.

 

Types of Accounts

NRO accounts can be opened as current, savings, recurring or fixed deposit accounts. The RBI determines the rate of interest on these accounts and issues guidelines for opening, operating and maintaining them.

 

Joint Accounts with Residents/Non-residents

Joint accounts are permitted with resident and non-residents.

 

Permissible Credits/Debits -

 

Credits -

 

    * Remittances from outside India through normal banking channels received in freely convertible foreign currency.

    * Any freely convertible foreign currency can be deposited into the account during the account holder's visit to India. Foreign currency exceeding USD 5000/- or its equivalent in the form of cash has to be supported by a Currency Declaration Form. Rupee funds must be supported by an Encashment Certificate, if they are funds brought from outside India.

    * Current income earned in India, such as rent, dividend, pension or interest. Even proceeds from sale of assets including immovable property acquired out of rupee or foreign currency funds or through inheritance.

 

Debits -

 

    * All payments towards expenses and investments in India

    * Payment outside India of current income like rent, dividend, pension, interest etc. in India of the account holder.

    * Repatriation up to USD One million, per calendar year, for all bonafide purposes with the approval of the authorised dealer.

 

Remittance of Assets -

NRIs and PIO may remit upto USD One million per calendar year, out of balances held in the NRO account which could be acquired from the sale proceeds of assets acquired in India out of rupee or foreign currency funds or by way of inheritance from a resident Indian, provided:

 

(a) Assets acquired in India out of rupee/foreign currency funds

(i) Immovable property: NRIs and PIO may remit sale proceeds of immovable property purchased by them when they were resident or out of Rupee funds as NRI or PIO.

(ii) Other financial assets: There is no lock-in period for remittance of sale proceeds of other financial assets

 

(b) Assets acquired by way of inheritance: Sale proceeds of assets acquired through inheritance can be remitted. No lock-in period applies here if the authorised dealer is satisfied that the proceeds are from inherited property.

 

Remittance of assets out of NRO account by a person resident outside India other than NRI/PIO

A foreign national who is not a citizen of Pakistan, Bangladesh, Nepal or Bhutan and who

 

    * has retired as an employee in India,

    * has inherited assets from a resident Indian, or

    * is a widow residing outside India and has inherited assets of her deceased husband who was a resident Indian can remit upto USD one million per calendar year on production of documentary evidence to support the acquisition by way of inheritance or legacy of assets to the authorised dealer.

 

Restrictions -

The above facility of repatriation from sale of immovable property is not extended to citizens of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan, Iran, Nepal and Bhutan. Remittance of sale proceeds from other financial assets is not extended to citizens of Pakistan, Bangladesh, Nepal and Bhutan.

 

Foreign Nationals of non-Indian origin on a visit to India

Foreign nationals of non-Indian origin are permitted to open a NRO account (current/savings) on their visit to India with funds remitted from outside India through normal banking channels or by foreign exchange brought to India. The balance in the NRO account is converted by the bank into foreign currency for payment to the account holder when he leaves India, provided the account was maintained for less than six months. The account should not be credited with any local funds during the term, except for interest accrued on it.

 

Grant of Loans/ Overdrafts by Authorised Dealers/ Bank to Account Holders and Third parties -

Loans to NRI account holders and to third parties is granted in Indian Rupees by authorised dealers (banks) against the security of fixed deposits provided:

 

    * The loans are utilised only for meeting the borrower's personal requirements or for business and not for agricultural/plantation /real estate or relending activities

    * RBI regulations pertaining to margin and rate of interest will apply

    * All norms and considerations which apply to loans to trade and industry will apply to loans and facilities granted to third parties.

 

The authorised dealer/bank may allow an overdraft to the account holder subject to his commercial discretion and compliance with the interest rate directives.

 

Change of Resident Status of Account holder -

(a) From Resident to Non-resident

When a resident Indian leaves India for taking up employment or for carrying on business outside India, his existing account is designated as a Non-Resident (Ordinary) Account, except in the case of persons shifting to Bhutan and Nepal. For the latter, the resident accounts do not change to NRO accounts.

 

(b) From Non-Resident to Resident

NRO accounts may be re-designated as resident rupee accounts once the account holder returns to India for taking up employment, or for carrying on business or for any other purpose indicating his objective to stay in India for an uncertain period. Where the account holder is only on a temporary visit to India, the account continues to be treated as non-resident during the visit.

 

Treatment of Loans/ Overdrafts in the Event of Change in the Resident Status of the Borrower -

In case of a resident Indian who had availed of loan or overdraft facilities while resident in India and who subsequently becomes a NRI, the authorised dealer may at its discretion allow the loan facility to continue. In this case, payment of interest and repayment of loan may be made by inward remittance or out of bonafide resources in India.

 

Payment of funds to Non-resident/Resident Nominee

The amount payable to a non-resident nominee from the NRO account of a deceased account holder is credited to the NRO account of the nominee.

 

Facilities to a person going abroad for studies -

Students going abroad for studies are treated as Non-Resident Indians (NRIs) and are eligible for all the facilities enjoyed by NRIs. All loans availed of by them as residents in India will continue to be extended as per FEMA regulations.

 

International Credit Cards

Authorised dealers are allowed to issue International Credit Cards to NRIs and PIO, without the permission of the RBI. Such transactions can be made by inward remittance or out of balances held in the cardholder's FCNR/NRE/NRO Accounts.

 

Income Tax

The remittances, after payment of tax are allowed to be made by the authorised dealers on production of a statement by the remitter and a Certificate from a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes, Ministry of Finance, Government of India

The Foreign Exchange Management Act, 1999 (FEMA) came into force with effect from June 1, 2000. With the introduction of the new Act in place of FERA, certain structural changes were brought in. The Act consolidates and amends the law relating to foreign exchange to facilitate external trade and payments, and to promote the orderly development and maintenance of foreign exchange in India.

From the NRI perspective, FEMA broadly covers all matters related to foreign exchange, investment avenues for NRIs such as immovable property, bank deposits, government bonds, investment in shares, units and other securities, and foreign direct investment in India.

FEMA vests with the Reserve Bank of India, the sole authority to grant general or special permission for all foreign exchange related activities mentioned above.

Section 2 - The Act here provides clarity on several definitions and terms used in the context of foreign exchange. Starting with the identification of the Non-resident Indian and Persons of Indian origin, it defines "foreign exchange" and "foreign security" in sections 2(n) and 2(o) respectively of the Act. It describes at length the foreign exchange facilities and where one can buy foreign exchange in India. FEMA defines an authorised dealer, and addresses the permissible exchange allowed for a business trip, for studies and medical treatment abroad, forex for foreign travel, the use of an international credit card, and remittance facility

Section 3 prohibits dealings in foreign exchange except through an authorised person. Similarly, without the prior approval of the RBI, no person can make any payment to any person resident outside India in any manner other than that prescribed by it. The Act restricts non-authorised persons from entering into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire any asset outside India.

Section 4 restrains any person resident in India from acquiring, holding, owning, possessing or transferring any foreign exchange, foreign security or any immovable property situated outside India except as specifically provided in the Act.

Section 6 deals with capital account transactions. This section allows a person to draw or sell foreign exchange from or to an authorised person for a capital account transaction. RBI in consultation with the Central Government has issued various regulations on capital account transactions in terms of sub-sect ion (2) and (3) of section 6.

Section 7 covers the export of goods and services. All exporters are required to furnish to the RBI or any other authority, a declaration regarding full export value.

Section 8 puts the responsibility of repatriation on the persons resident in India who have any amount of foreign exchange due or accrued in their favour to get the same realised and repatriated to India within the specific period and in the manner specified by the RBI.

 

The duties and liabilities of the Authorised Dealers have been dealt with in Sections 10, 11 and 12, while Sections 13 to 15 cover penalties and enforcement of the orders of the Adjudicating Authority as well as the power to compound contraventions under the Act.

Sections 36 and 37 deal with the establishment of an Enforcement Directorate, and empowers it to investigate the violation of any provisions of the Act, rules, regulations, notifications, directions or order issued under this Act.

From where does one purchase foreign exchange?

From authorised dealers or money changers.

 

Who are authorized dealers?

Banks certified by the RBI to transact in foreign exchange and foreign securities are also referred to as authorized dealers.

 

How much currency is allowed for a business tour?

USD 25,000 is permitted for a business tour to any country, with the exception of Nepal and Bhutan. Requirements in excess of this amount require permission of the RBI. No foreign exchange is permissible for journey to Nepal and Bhutan.

 

Can additional foreign exchange be taken for a medical trip abroad?

Upto USD 100,000 is allowed for medical treatment overseas. Requirements over and above this will be sanctioned on the basis of an approximation by a doctor or hospital in India or overseas.

 

How much forex is permitted for studies abroad?

Since students studying abroad are treated as NRIs, all rules applicable to NRIs apply to them as well .They are also entitled to receive forex upto USD 100,000 from relatives towards the cost of their studies.

 

How much foreign exchange is permitted for persons traveling abroad for employment?

Upto USD100, 000 is allowed from any authorised dealer on the basis of self-declaration.

 

How much foreign currency can an emigrant take?

Upto USD100, 000 on self- declaration basis is permitted to meet initial expenses in the adopted country. No foreign exchange remittance outside India is permitted to earn points or credits for immigration. Such outward remittances have to be supported by the RBI.

 

How much foreign currency can be sent as a gift to a person residing overseas?

One can send upto USD 5,000 a year, though amount exceeding this requires permission from the RBI.

 

How much foreign exchange can be carried by a person visiting India?

Unlimited foreign exchange is allowed .In case the total value of cash instruments – currency notes and travellers cheques - exceeds USD 10,000; a Currency Declaration Form has to be presented to the customs officials on arrival at the airport.

 

Can a non-resident accept local hospitality from a resident?

Yes.

 

Can resident Indians open foreign currency accounts in India?

Yes, EEFC Accounts and RFC Accounts can be kept by resident Indians.

In the EEFC account maintained with a bank, residents are allowed to keep 50% of foreign currency remittances received from abroad which can be used for current account transactions and approved capital account transactions as specified by the RBI.

 

In the RFC Accounts, returning Indians (ex-NRIs), can hold and maintain foreign currency. These funds are free from restrictions on use outside India.

 

A RFC (Domestic) Account can also be maintained by resident Indians for receiving payments for services abroad, or proceeds of export of goods abroad, or received as gifts from relatives outside India.

 

Can resident Indians hold possessions outside India?

Yes, as per Section 6 of the Foreign Exchange Management Act, 1999, if such assets were purchased, held or owned during their residence outside India or inherited from a person who was resident outside India.

 

Can an individual repatriate funds a second time during a calendar year?

Repatriation is allowed only upto a limit of USD 25,000 in a calendar year, and no further remittances are permitted, even if the same funds have been remitted back to India.

 

How are shares transferred from NRIs to Resident Indians and vice versa?

Transfer from Non-Resident to Non-Resident:

Transfer by way of sale: A person resident outside India can sell his shares or convertible debentures in the following manner:

 

    * The sale can take place provided the receiver does not have any venture in India in the same business

    * A NRI may sell the shares and convertible debentures possessed by him only to another NRI.

    * An NRI can sell his shares through an authorised broker in India

 

Transfer by way of Gift: NRIs can gift to resident Indians as under:

 

    * Any person be located in outside India, can present stocks or convertible debentures to any person resident outside India; provided the receiver does not have an existing tie up in India in the same business.

    * A NRI may gift his shares and/ or convertible debentures to another NRI only

    * Any person residing overseas may gift shares and/or convertible debentures to a person resident in India.

 

Transfer from Resident to Non-Resident:

Transfer by sale- General Permission

A resident Indian may sell shares and convertible debentures of any Indian company whose business falls under the Automatic Route, to any person living outside India subject to the sectoral limits.

 

    * Any Indian company that proposes to sell shares or convertible debentures should not be involved in extending any financial service;

    * The sale should not fall within the ambit of the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997; and

    * Pricing procedures, documentation and reporting requirements for such a deal must be as per requirements of the RBI.

 

Transfer by way of gift:

An Indian resident who proposes to gift to a person resident outside India is required to make an application to the Central Office of Foreign Exchange Department, Reserve Bank with details of

1) Name and address of the involved parties – transferor and transferee

2) Relationship between the two, and

3) Reasons for gifting

 

What procedure is to be followed in case the transfer does not fall into any of the above categories?

In such cases, an application to the RBI has to be made with

 

    * A copy of FIPB approval.

    * Consent/approval letter from transferor and transferee stating the number of shares, name of company in which investment is to be made and the rate at which the transfer is to be made.

    * Details of equity participation in the company by residents and non-residents.

    * All approvals and copies of FC-GPR from RBI pertaining to existing shares of the non-residents.

    * In case the seller is an NRI or an OCB, the copies of RBI approvals of the shares held on repatriation or non-repatriation basis.

    * In case the shares by the non-resident are under the SEBI Takeover Regulations, an Open Offer document filed with SEBI

    * A Chartered Accountant needs to certify the value of shares in a Fair Valuation Certificate as per guidelines

    * If the shares are unlisted, the fair value has to be calculated as per the former Controller of Capital Issue/s.

 

Can the savings and income earned in India be repatriated?

Yes, except where NRIs invest expressly in non-repatriable schemes. Dividends earned on foreign investments can be remitted without restriction.

 

Can Foreign Currency Convertible Bonds (FCCBs) be issued by Indian companies?

Yes, in compliance with the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism),1993 provided the External Commercial Borrowing guidelines of the RBI are adhered to.

 

Can Preference Shares be used as a route to foreign investment?

Yes. Proposals for such investments, which are considered as part of share capital, are filtered either through the automatic route or FIPB depending on the specific case.

 

Can investment be made by NRIs in unlisted shares issued by an Indian company?

Yes.

 

Is a foreigner allowed to establish a partnership/proprietorship concern in India?

No. Only NRIs/PIOs are allowed to set up a partnership or proprietorship business in India on a non-repatriation basis.

 

Can rights shares issued by Indian companies be offered to foreigners at a discount?

Yes, provided the rights shares are offered at par to residents as well.

Foreign Technical Collaboration

 

How are payments made for foreign technology transfer under the Automatic Route of RBI?

Such payments are subject to:

 

    * a maximum of US$2 million;

    * Royalty upto 5 % for domestic sales and 8 % for exports, with no bar on the duration of the payments.

    * The royalty limits are exclusive of taxes and are calculated as per standard conditions.

    * The royalty is worked on the basis of the net ex-factory sale price of the product.

    * Payments are made through authorised banks

 

What is to be done in cases where the Automatic Route of RBI for technology transfer does not apply?

The Ministry of Commerce, Department of Industrial Policy and Promotion, is referred to in such cases.

 

What is the procedure for foreign firms to establish a Liaison office in India?

RBI approval is required to set up office in India by a foreign company.

 

How does a foreign company obtain RBI sanction to start a Liaison Office in India?

 

    * The Liaison Office operates as a channel of communication between its overseas Head Office and parties in India. No business activity in India is permitted, and neither can it earn any income in India. The liaison office meets its expenses through inward remittances of foreign exchange from its Head Office abroad.

    * To open a liaison office, an submission in form FNC-1 along with relevant documents is made to

      Foreign Investment Division,

      Foreign Exchange Department, Reserve Bank of India,

      Central Office, Mumbai.

    * Consent to set up a liaison office at the outset is given for 3 years, which can be subsequently extended by the RBI’s Regional Office

    * An annual Activity Certificate from a Chartered Accountant has to be presented at the Regional Office of the RBI, verifying that the Liaison Office is engaged in only those activities which are allowed by the RBI.

 

How is a Project Office set up?

 

    * Foreign companies have been granted General Permission by the RBI to open Project Offices in India provided they have secured a contract for a project from an Indian company

    * the project is funded wholly by remittance from overseas; or

    * the project is funded by a bilateral or multilateral International Financing Agency; or

    * the project has been agreed to by a suitable authority; or

    * The Indian company awarding the contract has been extended a Term Loan by a financing institution

    * In case the above conditions are not met, or if the foreign company is established in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China, such requests are sent to the Central Office of the Foreign Exchange Department of the RBI at Mumbai for sanction.

 

How is a Branch office set up?

RBI permits foreign companies in the manufacturing and trading business to set up Branch Offices in India:

 

    * To represent its parent company to conduct business in India

    * To undertake research work in its area of business

    * To trade on a wholesale basis

    * To encourage possible technical and financial tie-ups between Indian companies and overseas companies.

    * Offering professional or consultancy services

    * Offering IT and software services

    * Giving technical sustenance to the products supplied by the parent company.

 

Branch offices are not permitted to carry out manufacturing, processing and trading activities on their own. An Activity Certificate from a Chartered Accountant has to be submitted annually to the Central Office of FED. For annual remittance of income, Branch Offices may submit required documents to a bank.

 

The track record of the Applicant Company, its existing trade relations with India and financial position of the company are taken into account by the RBI while scrutinizing the application.