Executive Summary:
This notification, issued by the Reserve Bank of India on April 23, 2024, amends the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019. The amendments concern payment modes and reporting requirements for equity shares of Indian companies listed on international exchanges and purchased/subscribed to by permissible holders. The regulations take effect from the date of their publication in the Official Gazette.
Key Points / Main Content:
* **Amendment to Regulation 3.1:**
* Adds a new clause (X) related to Schedule XI for equity shares of Indian companies listed on international exchanges.
* Specifies that payment for purchase/subscription of these shares by a permissible holder must be made:
* Through banking channels to a foreign currency account of the Indian company, or
* As inward remittance from abroad through banking channels.
* Sale proceeds (net of taxes) can be remitted outside India or credited to the permissible holder's bank account.
* **Amendment to Regulation 4:**
* Replaces the existing provision in sub-regulation (8) regarding LEC(FII) reporting.
* Authorised Dealer Category-I banks must report the purchase/transfer of equity instruments by Foreign Portfolio Investors (FPIs) on Indian stock exchanges using Form LEC (FII).
* Investee Indian companies, through an Authorised Dealer Category-I bank, must report the purchase/subscription of equity shares classified as Foreign Portfolio Investment by a permissible holder (excluding transfers between permissible holders) on an international exchange using Form LEC (FII).
Impact Analysis:
* **Authorised Dealer Category-I Banks:**
* Impact: Responsible for reporting equity instrument transactions by FPIs on Indian stock exchanges and purchase/subscription of equity shares on international exchanges using Form LEC (FII).
* Action Required: Ensure accurate and timely reporting of FPI transactions and purchase/subscription activities as per the amended regulations.
* **Investee Indian Companies:**
* Impact: Responsible for reporting purchase/subscription of equity shares classified as Foreign Portfolio Investment by a permissible holder through an Authorised Dealer Category-I bank using Form LEC (FII).
* Action Required: Report the purchase/subscription of equity shares classified as Foreign Portfolio Investment.
* **Foreign Portfolio Investors (FPIs):**
* Impact: Subject to the reporting requirements for the purchase/transfer of equity instruments on Indian stock exchanges.
* Action Required: Ensure compliance with the reporting requirements through Authorised Dealer Category-I banks.
* **Permissible Holders:**
* Impact: Governed by the specified modes of payment for purchasing/subscribing to equity shares of Indian companies listed on international exchanges and the handling of sale proceeds.
* Action Required: Comply with the stipulated payment methods and regulations for remitting sale proceeds.
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 Non-Debt Instrument Rules, 2019: Rules pertaining to modes of payment and reporting requirements for non-debt instruments.
Foreign Exchange Management Mode of Payment and Reporting of Non-Debt Instruments Regulations, 2019: Regulations governing the methods of payment and reporting for non-debt instruments transactions.
Foreign Exchange Management Mode of Payment and Reporting of Non-Debt Instruments Amendment Regulations, 2024: Amendments to the 2019 regulations concerning payment modes and reporting requirements for non-debt instruments.
Form LEC FII: A form used by Authorised Dealer Category I banks and Investee Indian companies to report the purchase or transfer of equity instruments by Foreign Portfolio Investors (FPIs) on stock exchanges in India and on International Exchanges.
Authorised Dealer Category I banks: Banks authorized by the Reserve Bank of India to deal in foreign exchange.
Foreign Portfolio Investment: An investment in the financial assets of a foreign country.
RESERVE BANK OF INDIA
(FOREIGN EXCHANGE DEPARTMENT)
CENTRAL OFFICE
MUMBAI 400 001
No. FEMA. 395(2)/2024-RB April 23, 2024
Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Amendment)
Regulations, 2024
In exercise of the powers conferred by Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999) and
consequent to the Foreign Exchange Management (Non-Debt Instrument) Rules, 2019, 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, 2024.
(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, after Sl no. IX, the following shall be inserted namely: -
X. Schedule XI A. Mode of Payment
(1) The amount of consideration for purchase / subscription of equity shares of an
(Purchase or Indian company listed on an International Exchange shall be paid, -
Subscription of Equity (i) through banking channels to a foreign currency account of the Indian company held
Shares of Companies in accordance with the Foreign Exchange Management (Foreign currency accounts by
Incorporated in India a person resident in India) Regulations, 2015, as amended from time to time; or
on International (ii) as inward remittance from abroad through banking channels.
Exchanges Scheme by
Permissible Holder) Explanation: The proceeds of purchase / subscription of equity shares of an Indian
company listed on an International Exchange shall either be remitted to a bank account
in India or deposited in a foreign currency account of the Indian company held in
accordance with the Foreign Exchange Management (Foreign currency accounts by a
person resident in India) Regulations, 2015, as amended from time to time.
B. Remittance of sale proceeds
The sale proceeds (net of taxes) of the equity shares may be remitted outside India or
may be credited to the bank account of the permissible holder maintained in accordance
with the Foreign Exchange Management (Deposit) Regulations, 2016.
3. Amendment to Regulation 4 of the Principal Regulations
In sub-regulation (8) of Regulation 4 of the Principal Regulations, the existing provision shall be substituted by the
following, namely:
“LEC(FII): (i) The Authorised Dealer Category I banks shall report to the Reserve Bank in Form LEC (FII) the
purchase / transfer of equity instruments by FPIs on the stock exchanges in India.
(ii) The Investee Indian company through an Authorised Dealer Category I bank shall report to the Reserve Bank in
Form LEC (FII) the purchase/subscription of equity shares (where such purchase / subscription is classified as ForeignPortfolio Investment under the rules) by permissible holder, other than transfers between permissible holders, on an
International Exchange.”
(Latha Radhakrishnan)
General Manager-in-Charge
Foot Note:
The Principal Regulations were published in the Official Gazette of Government of India vide G.S.R.No.795(E) dated
17.10.2019 in Part II, Section 3, sub-Section (i) and subsequently amended, vide:
1. Notification no. FEMA 395(1)/2020-RB [Foreign Exchange Management (Mode of Payment and Reporting
of Non-Debt Instruments) (Amendment) Regulations, 2020] dated June 15, 2020, published in the Gazette
of India [Extraordinary, Part III–Section 4], vide Gazette ID CG-MH-E-19062020-220016 dated 18.06.2020.