The Foreign Exchange Management Act, 1999 (Part-4)
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.
Transaction where withdrawal from India of foreign currency is prohibited:
We noted in our previous article that person may enter in foreign currency transaction, but shall transaction be required to be routed through authorized dealer; Otherwise, it will be treated as violation. There are transactionswhich has been mentioned in Schedule 1; every person is prohibited from withdrawing foreign exchange in respect of all the transactions. That is, such transactions are to be treated as prohibited transactions.
Illustrations:
1. Mr. Hari is person not resident in India, in current year he came to India for a visit. During his visit he has undertaken following transactions;
i. Purchase of Lottery Ticket from Indian vendor.
ii. Foreign exchange of $2,000/- from a hotel where he stayed. Hotel does not hold any specific permission from Reserve Bank of India.
iii. He purchases some magazines outside India for which he paid directly his hometown bank account.
iv. He won $ 1,000/- on purchase of such lottery ticket, now he wants to take such amount back to his hometown?
v. In it has been specified that if person is entering into foreign currency transaction than in that case, he is required to comply with provision mentioned in Foreign Exchange Management Act.
In reference to first transaction; person resident outside India is allowed to purchase lottery tickets in India, irrespective of whether purchase price is mentioned in rupee terms or not. If reverse was the case that is person is resident in India and wants to withdraw foreign exchange for purchasing such lottery tickets outside India; than such transaction was prohibited. However, here the case is not of prohibited transaction therefore, he is allowed to purchase such lottery ticket.
In reference to second transaction, it has been specified that person is not allowed to enter into foreign currency exchange transaction except, through authorized dealer; as hotel is not permitted by RBI, transaction entered by Mr. Hari will be treated as violation.
In reference to third transaction if withdrawal is for reimbursing expense of lottery tickets purchase or purchase of banned magazines outside India than withdrawal of foreign exchange from India is prohibited; here it can be seen that Mr. Hari has paid the said amount from his bank account which is situated outside India; and therefore, the said transaction will not be treated as prohibited transaction
In reference to fourth transaction, it has been specified that, person is prohibited from withdrawing foreign exchange where withdrawal is out of Lottery Winnings; therefore, in first instance where winning amount is specified in foreign currency the person will not be allowed to take such amount to his hometown as transaction is specifically prohibited.
2. Mr. B has a subsidiary situated outside India. He made export of $ 70,000/- to the said country. As he was required to contribute the amount in said subsidiary as equity investment; he directly transfers such proceeds to the said company. Mr. B also, wants to pay commission on said transaction; whether he is allowed to pay?
In above case Mr. B has undertaken a transaction where he wants to pay commission on exports; and where export proceeds are utilised towards equity investment in subsidiaries outside India. If such subsidiary is wholly owned subsidiary than in that case such transaction of paying commission will be treated as prohibited transaction. Assuming such contribution is not towards any Joint venture or Wholly owned subsidiary Mr. B is allowed to undertake such transaction.