The Foreign Exchange Management Act, 1999 (Part-1)
Introduction : It is important to know that how entity is required to comply with the law, in case where entity is undertaking foreign currency transactions. Our professionals through issuing article in different part, will try to cover the entire provisions relating to this law.
- Capital Account Transaction: means a transaction, which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liability in India of persons resident outside India, and includes transactions referred to in Section 6(3).
If we analyze this definition than:
For person resident in India every transaction which has effect of changing assets or liability or contingent liability outside India. The said will be treated as capital account transaction.
For person resident outside India every transaction which has effect of changing assets or liability situated in India.
And for both the above transaction defined in section 6(3) will be treated as capital account transaction.
If we move further than we need to under who is the person that will be treated as resident in India and person resident outside India.
- Person Resident in India
Exception to above general rule:
If person has gone out of India or who stays outside India for following three purpose;
- a) For or on taking up employment outside India, or
- b) For carrying on outside India a business or vocation outside India, or
- c) For any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period.
- d) or the person who comes to India for any purpose other than three specified above. meaning thereby if such person comes/stays in India for the said three purpose and during preceding financial year he has stayed in India for more than 182 days than he will be considered as resident.
(ii) In case of body corporate, it will be treated as resident if it is registered or incorporated in India.
(iii) An office, branch or agency in India owned or controlled by a person resident outside India.
(iv) An office, branch or agency outside India owned or controlled by a person resident in India.
Illustrations: Mr. R has come to India for the purpose of employment; during the preceding financial year he stayed in India for 178 days. Whether he is considered as person resident in India.
As per above definition person can be considered as resident in India only if he was in India for more than 182 days during preceding financial year. In the given case as person was not in India for more than 182 days during preceding financial year he cannot be considered as resident.
What if Mr. R was in India for 293 days during previous year?
In that case as Mr. R was in India for more than 182 days for preceding year and during the current year, he has come for the specified purpose; Therefore, he will be considered as resident in India.
What if in said situation during current year Mr. R leaves India unspecified period of stay outside India.
In that case two residential status will be given to Mr. R;
- i) When Mr. R was in India for the purpose of employment; till that he will be considered as resident; after he left India for unspecified period than he become qualified for becoming non-resident.
It shall be noted that unlike Income Tax, here there can be more than one residential status during same financial year.
Illustration: Mr. D is person resident outside India as per the definition given in Foreign Exchange Management Act; he holds the office in India. Whether said office transaction will be considered as transaction by resident?
It has been given in the definition that that any branch, office, agency is situated in India even thought it is controlled from person resident outside India; it will be covered under the definition of person resident in India.
What if in the same case person is resident in India and the office is situated outside India?
In that case also it will be covered under the definition of person resident in India and transaction are to be treated accordingly.
In part two we will continue with the other provision relating to Foreign Exchange Management Act.