Executive Summary:
This notification, FEMA. 395/2020-RB, issued on June 15, 2020, amends the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019. The amendments concern the modes of payment and remittance for investments by Foreign Portfolio Investors (FPIs) and investments in Investment Vehicles by persons resident outside India. These regulations come into force from the date of their publication in the Official Gazette.
Key Points / Main Content:
* **Amendments to Regulation 3.1:**
* **Schedule II (Investments by Foreign Portfolio Investors):**
* **Mode of Payment:** Consideration must be inward remittance through banking channels or from foreign currency/SNRR accounts. These accounts are exclusively for transactions under Schedule II, unless otherwise specified.
* **Remittance of Sale Proceeds:** Sale proceeds (net of taxes) of equity instruments, REITs, InViTs, and domestic mutual funds can be remitted outside India or credited to foreign currency/SNRR accounts of the FPI.
* **Para A.2 of Sl. No. VII:**
* Foreign currency and SNRR accounts shall be used only and exclusively for transactions under the relevant Schedules, unless otherwise specified.
* **Schedule VIII (Investment in an Investment Vehicle by a Person Resident Outside India):**
* **Mode of Payment:** Consideration should be inward remittance, swap of shares of a Special Purpose Vehicle, or from NRE/FCNRB accounts. FPIs/FVCIs can also use SNRR accounts for trading units of Investment Vehicles listed/to be listed on Indian stock exchanges (primary issuance).
* **Remittance of Sale/Maturity Proceeds:** Sale/maturity proceeds (net of taxes) of units can be remitted outside India or credited to NRE/FCNRB/SNRR accounts, as applicable.
Impact Analysis:
* **Foreign Portfolio Investors (FPIs) and Foreign Venture Capital Investors (FVCIs):**
* Impact: Revised regulations on permissible modes of payment for investments and remittance of sale proceeds.
* Action Required: Ensure compliance with the updated regulations regarding the use of banking channels, foreign currency accounts, and SNRR accounts for investment and remittance transactions.
* **Persons Resident Outside India Investing in Investment Vehicles:**
* Impact: Revised regulations on permissible modes of payment for investments and remittance of sale proceeds/maturity proceeds.
* Action Required: Ensure compliance with updated regulations regarding modes of payment via inward remittance, swap of shares, NRE/FCNRB accounts and remittance of proceeds.
* **Investment Vehicles (including REITs, InViTs, and Domestic Mutual Funds):**
* Impact: Must understand how the revised regulations affect investment flows and reporting requirements related to FPI and other non-resident investments.
* Action Required: Update internal processes to align with the new regulations and provide necessary information to investors to facilitate compliance.
* **Authorized Dealer Banks:**
* Impact: Need to ensure that transactions comply with the amended regulations.
* Action Required: Update internal systems and procedures to reflect the changes in permissible modes of payment and reporting requirements.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the foreign exchange market.
Foreign Exchange Management Act, 1999: An act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Foreign Exchange Management Mode of Payment and Reporting of Non-Debt Instruments Regulations, 2019: Regulations pertaining to the modes of payment and reporting requirements for non-debt instruments under the Foreign Exchange Management Act.
Foreign Portfolio Investors: Investors who invest in financial assets of a country.
Special Non-Resident Rupee (SNRR) account: A type of account maintained in accordance with the Foreign Exchange Management Deposit Regulations, 2016.
Real Estate Investment Trusts (REITs): A company that owns or finances income-producing real estate.
Infrastructure Investment Trusts (InViTs): A collective investment scheme similar to a mutual fund, which enables direct investment of money from individual and institutional investors in infrastructure projects.
Non-Resident External (NRE) account: A bank account held in India in the name of a non-resident Indian (NRI) to park their foreign earnings.
[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART III, SECTION IV]
Reserve Bank of India
Foreign Exchange Department
Central Office
Mumbai
Notification No. FEMA. 395 (1)/2020-RB June 15, 2020
Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Amendment)
Regulations, 2020
In exercise of the powers conferred by Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the
Reserve Bank of India hereby makes the following amendments to the Foreign Exchange Management (Mode of
Payment and Reporting of Non-Debt Instruments) Regulations, 2019 [Notification No. FEMA.395/2019-RB dated
October 17, 2019] (hereinafter referred to as ‘the Principal Regulations) namely:-
1. Short Title & Commencement
(i) These Regulations may be called the Foreign Exchange Management (Mode of Payment and Reporting of Non-
Debt Instruments) (Amendment) Regulations, 2020.
(ii) They shall come into force from the date of their publication in the Official Gazette.
2. Amendment to Regulation 3.1 of the Principal Regulations
In Regulation 3.1 of the Principal Regulations-
(i) The existing provision at Sl. No. II shall be substituted by the following, namely:
II. Schedule II A. Mode of payment
(Investments by Foreign (1) The amount of consideration shall be paid as inward remittance from
Portfolio Investors) abroad through banking channels or out of funds held in a foreign currency
account and/ or a Special Non-Resident Rupee (SNRR) account maintained in
accordance with the Foreign Exchange Management (Deposit) Regulations,
2016.
(2) Unless otherwise specified in these regulations or the relevant Schedules,
the foreign currency account and SNRR account shall be used only and
exclusively for transactions under this Schedule.
B. Remittance of sale proceeds
The sale proceeds (net of taxes) of equity instruments and units of REITs,
InViTs and domestic mutual fund may be remitted outside India or credited to
the foreign currency account or a SNRR account of the FPI.(ii) The existing provision at para A (2) of Sl. No. VII shall be substituted by the following, namely:
“Unless otherwise specified in these regulations or the relevant Schedules, the foreign currency account and
SNRR account shall be used only and exclusively for transactions under this Schedule.”
(iii) The existing provision at Sl. No. VIII shall be substituted by the following, namely:
VIII. Schedule VIII A. Mode of payment:
(Investment by a person
resident outside India in an The amount of consideration shall be paid as inward remittance from abroad
Investment Vehicle) through banking channels or by way of swap of shares of a Special Purpose
Vehicle or out of funds held in NRE or FCNR(B) account maintained in
accordance with the Foreign Exchange Management (Deposit) Regulations,
2016.
Further, for an FPI or FVCI, amount of consideration may be paid out of their
SNRR account for trading in units of Investment Vehicle listed or to be listed
(primary issuance) on the stock exchanges in India.
B. Remittance of sale/ maturity proceeds:
The sale/ maturity proceeds (net of taxes) of the units may be remitted outside
India or may be credited to the NRE or FCNR(B) or SNRR account, as
applicable of the person concerned.
(Ajay Kumar Misra)
Chief General Manager-in-Charge
Foot Note
The Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019,
(Notification No. FEMA 395/2019-RB dated October 17, 2019) was published in the Official Gazette vide
G.S.R.No.795(E) dated 17.10.2019.