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 amendment introduces new regulations regarding payment and reporting for the purchase/subscription of equity shares of Indian companies listed on international exchanges. These regulations take effect from the date of their publication in the Official Gazette.
Key Points / Main Content:
Payment for Equity Shares on International Exchanges:
* Consideration for purchase/subscription of equity shares of Indian companies listed on an International Exchange must be paid either:
* 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, may be remitted outside India or credited to the permissible holder's bank account.
Reporting Requirements (LECFII):
* Authorized Dealer Category-I banks must report to the Reserve Bank in Form LEC (FII) the purchase/transfer of equity instruments by FPIs on stock exchanges in India.
* Investee Indian companies, through an Authorised Dealer Category-I bank, must report in Form LEC (FII) the purchase/subscription of equity shares classified as Foreign Portfolio Investment by permissible holders (excluding transfers between permissible holders) on an International Exchange.
Impact Analysis:
Authorised Dealer Category I Banks:
* Impact: Responsible for reporting equity instrument purchases/transfers by FPIs and the purchase/subscription of equity shares on international exchanges in Form LEC (FII).
* Action Required: Ensure accurate and timely reporting of transactions as per the amended regulations.
Investee Indian Companies:
* Impact: Responsible for reporting the purchase/subscription of equity shares on international exchanges (when classified as Foreign Portfolio Investment) through their Authorised Dealer Category-I bank.
* Action Required: Coordinate with their Authorised Dealer Category-I bank to accurately report such transactions in Form LEC (FII).
Foreign Portfolio Investors (FPIs):
* Impact: Subject to reporting requirements by Authorised Dealer Category I banks for purchase/transfer of equity instruments.
* Action Required: Ensure compliance with reporting requirements through their respective banks.
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 non-debt instruments under the Foreign Exchange Management Act.
Foreign Exchange Management Mode of Payment and Reporting of Non-Debt Instruments Regulations, 2019: Regulations governing the mode of payment and reporting requirements for non-debt instruments.
Foreign Exchange Management Foreign currency accounts by a person resident in India Regulations, 2015: Regulations pertaining to foreign currency accounts held by individuals residing in India.
Foreign Exchange Management Deposit Regulations, 2016: Regulations governing deposits under the Foreign Exchange Management Act.
Authorised Dealer Category I: A category of banks authorized to deal in foreign exchange.
Form LEC FII: A form used for reporting the purchase and transfer of equity instruments by Foreign Portfolio Investors (FPIs) on stock exchanges in India.
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.