(A) Amendment in Foreign Direct Investment LimitsThe Government of India has liberalised its extant FDI policy and made a few changes in the sectoral caps for FDI in the insurance, petroleum and telecom sectors. These changes are explained as under:
|
Sr. No.
|
Sector / Activity
|
% of Equity / FDI Cap
|
Entry route
|
|
Erstwhile limit
|
New limit
|
|
1
|
Insurance1 (Refer Note 1)
|
49%
|
74%
|
Automatic
|
|
2
|
Petroleum
refining by the Public Sector Undertakings (PSUs), without any disinvestment
or dilution of domestic equity in the existing PSUs2
|
49%
|
49%
(100% allowed under automatic route where in-principle approval for strategic
disinvestment of a PSU has been granted by the Government)
|
Automatic
|
|
3
|
Telecom3
|
Automatic route up to 49% and beyond that under approval route
|
100% under Automatic route
|
Automatic
|
Note 1: The increase in the sectoral cap for insurance companies from 49% to 74% under the automatic route is subject to several conditions mentioned in the Press Note No. 2 (2021 Series) dated 14th June, 2021. Most of the conditions are the same as mentioned in the FDI Policy, 2020; one major change is with respect to constitution of the Board of Directors for insurance companies due to increase in their limit to 74%. Under the new condition, the Indian insurance company that has received foreign direct investment would need to ensure that the following persons are resident Indian citizens:
• Majority of Directors of such insurance companies;
• Majority of its Key Management Persons; and
• at least one among the Chairperson of the Board, the Managing Director and the Chief Executive Officer
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Further, the definition of Key Management Persons is the same as that defined in the guidelines issued by the Insurance Regulatory and Development Authority of India (‘IRDAI’) on corporate governance for insurers in India.
(B) Amendment in Foreign Exchange Management (Export of Goods & Services) Regulations4
Under the existing Foreign Exchange Management (Export of Goods & Services) Regulations, 2015 (‘Export Regulations’), the rate of interest payable on advance payment received by the exporter from the buyer was capped at 100 basis points over the LIBOR rate. However, due to impending cessation of LIBOR as a benchmark rate, RBI has now permitted the use of any other applicable benchmark as directed by the RBI instead of the earlier specified only LIBOR rate.
(C) Review of FDI policy on downstream investment made by NRIs on non-repatriation basis5
The Government has now clarified that investments made by NRIs on non-repatriation basis would be deemed to be domestic investments at par with investments made by residents. Accordingly, investments made by an Indian entity which is owned and controlled by an NRI on non-repatriation basis shall not be considered for calculation of indirect foreign investment.
(D) ECB – Relaxation in period for parking of unutilised ECB proceeds in term deposits6
Under the existing ECB Regulations, ECB borrowers are permitted to park unutilised ECB proceeds in term deposits with AD Banks for a maximum period of 12 months cumulatively. However, in view of the Covid situation, RBI has now relaxed this provision and accordingly unutilised ECB proceeds drawn on or before 1st March, 2020 can be parked in term deposits with AD Banks prospectively for an additional period up to 1st March, 2022.
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(E) Appointment of Special Director (Appeals) and his jurisdiction7
The Central Government has changed the jurisdiction of the Regional Special Director (Appeals) for hearing appeals filed against the order passed by the adjudicating authority under FEMA. The Table below prescribes the authority and its jurisdiction for hearing appeals:
|
Sr. No.
|
Special Director
(Appeals)
|
Station
|
Zone
|
Sub-zone
|
Jurisdiction
|
|
1.
|
Commissioner of Income-tax (Appeals)-23, Delhi
|
Delhi
|
Delhi, Chandigarh Jaipur, Jalandhar and Srinagar
|
Dehradun and Shimla
|
States of Rajasthan, Uttarakhand, Haryana, Punjab, Himachal
Pradesh and Union Territory of Chandigarh, Union Territory of Jammu and
Kashmir and Union Territory of Ladakh, National Capital Territory of Delhi
|
|
2.
|
Commissioner of Income-tax (Appeals)-20, Kolkata
|
Kolkata
|
Kolkata, Guwahati Lucknow and Patna
|
Bhubaneswar, Allahabad and Ranchi
|
States of West Bengal, Assam, Meghalaya, Arunachal Pradesh,
Sikkim, Nagaland, Manipur, Mizoram, Tripura, Odisha, Bihar, Jharkhand, Uttar
Pradesh and Union Territory of Andaman and Nicobar
|
|
3.
|
Commissioner of Income-tax (Appeals)-47, Mumbai
|
Mumbai
|
Mumbai, Ahmedabad and Panaji
|
Surat, Nagpur, Indore and Raipur
|
States of Maharashtra, Goa, Madhya Pradesh, Chhattisgarh,
Gujarat, Union Territory of Dadra and Nagar Haveli and Daman and Diu
|
|
4.
|
Commissioner of Income-tax (Appeals)-18, Chennai
|
Chennai
|
Chennai, Kochi Bengaluru and Hyderabad
|
Madurai and Kozhikode
|
States of Tamil Nadu, Kerala, Karnataka, Andhra Pradesh and
Telangana, Union Territory of Puducherry and Union Territory of Lakshadweep
|
(F) Amendment in Master Direction on Direct Investment by Residents in Joint Venture (JV) / Wholly-Owned Subsidiary (WOS) Abroad8
RBI has clarified that sponsor contribution by an Indian Party (‘IP’) to an Alternative Investment Fund (‘AIF’) set up in Overseas Jurisdictions, including International Financial Services Centres (‘IFSCs’) as per the laws of the host jurisdiction, will be treated as Overseas Direct Investment (ODI). Accordingly, an IP can set up an AIF in overseas jurisdictions, including IFSCs, under the automatic route, provided it complies with relevant regulations of FEMA 120/2004-RB (‘FEMA 120’).
Further, RBI, in consultation with SEBI, has enhanced the limit of overseas investment by Domestic Venture Capital Funds / Alternative Investment Funds registered with SEBI in equity and equity-linked instruments of off-shore Venture Capital Undertakings from the existing USD 750 million to USD 1,500 million.
Also, for investment by way of swap of shares, it is clarified that an Indian company can issue capital instruments to a person resident outside India under the automatic route if the Indian investee company is engaged in a sector which is under automatic route or with prior Government approval, if the Indian investee company is engaged in a sector under Government route as per Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 dated 17th October, 2019, as amended from time to time.
Additionally, RBI has also issued a clarification in para B.22 of the Master Direction on ODI which pertains to opening of a foreign currency account abroad by an Indian Party. RBI has now clarified that in addition to existing conditions, such account can be opened only if the Indian Party is eligible to make ODI under the provisions of FEMA, 120.
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7 Notification S.O. 3958(E) [F. No. K-11022/15/2021-AD.ED], Dated 24-9-2021
8 A.P.(DIR Series) Circular No. 04 dated 12th May, 2021 and SEBI/HO/IMD/DF6
(G) Clarification for the purpose of computation of late submission fee (‘LSF’)Under the existing FDI provisions, if there is any delay in filing of any specified reports, such delay can be regularised by payment of LSF instead of going through the compounding process. For the purpose of computing LSF, the earlier Master Direction on Reporting specified that the period of delay would be counted from the day after the 30th day from receipt of funds / allotment or transfer of shares and end on the day preceding the day on which the transaction report is received by the RBI. RBI has now made an amendment in the Master Direction on Reporting and clarified that
the period of delay will now be counted beginning from the day after completion of the prescribed time period and end on the day preceding the day on which the transaction report is received by the RBI. The prescribed time period means the time period mentioned in the relevant regulations from the date of receipt of funds / allotment or transfer of shares, as the case may be.
Accordingly, where FDI regulations provide for a period of 60 days for filing of specified forms, such as filing of Form FC-TRS and Form FDI-LLP(II), the delay period for computing LSF will now start from the end of the stipulated time period, i.e., the 60th day.
(H) Liberalised remittance scheme (‘LRS’) for resident individuals – Change in reporting requirement for AD Banks9AD Banks are required to submit yearly details of applications received and remittances made by resident individual account holders under the LRS route to RBI. This reporting was required to be made on the Online Return Filing System (ORFS) but now the same is required to be made through the XBRL system by accessing the URL https://xbrl.rbi.org.in/orfsxbrl. Further, in case no data is required to be furnished, AD Banks are required to file Nil figures.
(I) Introduction of Foreign Exchange Transactions Electronic Reporting System (FETERS)10
RBI, in order to collect more information on international transactions using credit card / debit card / unified payment interface (UPI), has introduced FETERS with effect from 1st April, 2021. AD Banks are required to submit details of transactions through credit card / debit card / UPI (including sale and purchase of Forex towards international transactions) along with their economic classification (merchant category code – MCC). The reporting needs to be done through a new
return, namely, ‘FETERS-Cards’ on https://bop.rbi.org.in. The frequency of submission is monthly and the same needs to be done within seven working days from the last date of the month for which reporting is to be made.
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9 A.P. (Dir Series 2021-22) Circular No. 7, Dated 7-4-2021
10 A.P. (Dir Series) Circular No.13, dated 25-3-2021
