Foreign companies or investors are required comply with the Foreign Exchange Management Act (FEMA) to set up a business venture in India. They are required to follow the regulations set by the Reserve Bank of India (RBI), which in turn grants permissions in accordance with FEMA.
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Important Compliance Procedures
Annual Return Filing
File Annual Return on Foreign Assets and Liabilities
File Annual Performance Report of the Foreign Company
Furnish details of any external commercial borrowings
File using the single Master Form
Advance Reporting Form
Prepare the reporting form
File Forms FC-GPR, FC-TRS, ODI
Certification of TCR, TCK, & TDS for foreign exchange remittances
- FEMA is not applicable to Indian citizens residing outside India for more than 182 days in a financial year. This rule applies to a branch office, an agency or a person.
- FEMA provides authority to the Central Government to restrict and monitor the payments made outside India or received from outside sources, forex and foreign security deals.
- Acquisition/holding of forex needs special permission from the Reserve Bank of India (RBI) or the Government.
- Foreign exchange transactions are categorized under capital account or current account. Transactions contributing to the assets and liabilities outside India or for an NRI inside India, fall under capital account. All others fall under the current account category.
- Non-compliance of FEMA rules attracts a penalty of 3x the sum involved or INR 2,00,000, whichever is lower. Additionally a penalty of INR 5,000 is payable for each day of default.