They rolled out FEMA in 1999, which is short for Foreign Exchange Management Act. It basically took over from the old Foreign Exchange Regulation Act (FERA) of 1973. This new rulebook is all about handling cross-border investments and external trade.
It is mainly applied to ensure smooth international business payments. It includes a wide range of regulations and enhances measures against money laundering and terrorist financing.
If your business does not comply with FEMA, it can result in penalties and fines. Therefore, businesses operating in India must have a thorough understanding of FEMA and its practical application.
About
Importing is the process of bringing commodities into a certain country. Importation can take place by land, air, or water. The Government of India, Customs Officers, and Border Forces impose many limitations on importing products into the nation. Goods brought into the nation would be permitted as long as they complied with the appropriate import rules. Several limitations apply to items imported into a nation. Certain types of items are restricted from entering the nation. As a result, it is critical for the importer and seller to comply with the regulations governing the import of commodities into the country. Compliance with FEMA legislation for the import of products must be maintained by the importer and the parties involved.
Importing Institutions dealing with Import of Goods and Service under FEMA
Under FEMA Law, many entities handle the import of products. The Directorate General of Foreign Trade is the key entity in charge of goods imports (DGFT). This organization is part of the Ministry of Commerce & Industry, the Department of Commerce, and the Government of India.
This nodal institution regulates the import of products under FEMA legislation. This authority’s regulations are distributed to authorized dealers and importers. The Indian government has issued the Foreign Trade Policy (FTP), which applies to all approved dealers and importers. Goods imported into India must adhere to the Foreign Trade Policy (FTP) (the ‘Policy’). The Indian government modifies its international trade strategy on a regular basis. Foreign Trade Policy amendments must be followed by authorized dealers and importers. This strategy was implemented by the Indian government in 1992. The policy is in effect for five years. The government would explore future changes to this policy every five years.
Before engaging in import-related operations in India, authorized banks must confirm that importers are in compliance with the Foreign Trade Policy. The Foreign Exchange Management Act, 1999 governs the entry of products into India (FEMA). Aside from that, products imported under FEMA regulations would be subject to the Foreign Exchange Management (Current Account Transactions) Rules, 2000.
The Reserve Bank of India oversees the country’s foreign exchange management. As a result, the Authorized Dealer must likewise follow the RBI’s foreign exchange requirements.
Mode of Payment under FEMA Law for Import of Goods and Services
An individual in India might be a products importer. The following requirements must be met in order for the payment to be made:
- Individual holds an international debit/credit card in rupees.
- Payments made by credit/debit card through an Indian service bank;
- The importer must provide the bank with a charge slip; and
- Transactions must adhere to the appropriate Foreign Trade Policy.
Individuals may also make payments in rupees:
- For boarding and lodging expenses, as well as travel expenditures for an individual residing outside of India. These costs will also cover travel to and from India for the individual residing outside of India.
- A crossed cheque or a draught can be used to make payment. These ways of payment are available for gold or silver acquired outside of India. The Foreign Trade (Development and Regulations) Act, 1992 governs the acquisition of gold and silver.
- A company can make a payment in rupees to a non-full-time director who is located outside of India. The payment might be paid while the director is in India on business. However, the corporation must pay the director sitting fees, commissions, and salaries, which includes travel expenses to and from India. These ways of payment must be in accordance with the company’s Memorandum of Association or Articles of Association, as well as any agreement or resolution made by the shareholders.
Import Transactions Procedure/Process- Import of Goods and Services under FEMA
- Outward Remittances for Imports- FEMA Import of Goods and Services: When items are brought into the nation, authorized dealers/banks allow remittances to be made. However, before proceeding with the transaction, the importer must ensure that all compliances have been met. Remittances must be made for legitimate transactions.
- FEMA Import License- Import of Goods and Services: Under FEMA Law, import licenses would be necessary for the import of products. According to the Foreign Trade Policy, many kinds of items are restricted. Goods with no limitations would be permitted to be brought into the nation. Authorized merchants can do this by opening letter of credit (LOC) and allowing remittances for imports. When the approved bank prepares a letter of credit, copies of the import license should be included. This is necessary for the purposes of exchange control. The approved bank must keep a copy of the letter of credit and the import license on file for inspections and internal audits.
- Foreign Exchange Requirements- FEMA Import of Goods and Services: Individuals who purchase foreign exchange must comply with the rules of the Foreign Exchange Management Act, 1999. The individual’s foreign exchange can be utilized in accordance with the statement made in the declaration form given by the Authorized dealer. Aside from that, the individual may only utilize the foreign exchange for legitimate purposes.If the individual uses foreign currency to import items into the nation, the approved bank must ensure that the importer publishes some receipts or documentation of the transaction. The importer must provide this information in the Import Data Processing and Monitoring System (IDPMS), Postal Appraisal Form, and Customs Assessment Certificate. The importer and the approved bank must both agree that the remittance is equal to the amount of the imported items.
- System for Import Data Processing and Monitoring (IDPMS): The RBI, in collaboration with other organizations, simplified and developed this system. This system’s primary goal is to improve the efficiency of import processing transactions. Aside from that, this technology allows for effective monitoring of import transactions. Authorized banks must ensure that all import remittances are posted to the IDPMS.
Time Extension under FEMA Law
Under FEMA law, time can be extended for the import of products in a variety of scenarios. Authorized banks often allow six months to complete remittances for an import transaction. However, in some cases, the duration is extended to three years. Time can be prolonged in the following cases:
- Dispute resolution between the seller and the importer;
- Action brought by the importer against the vendor;
- The Import’s Quality;
- Non-compliance with the contract; and
- The importer is experiencing financial troubles.
However, an approved bank will never extend the time for more than three years. When an approved bank extends the period for an import transaction, the following must be taken into account:
- The Directorate of Enforcement, the Central Bureau of Investigation, or any other investigative authorities have no authority over the import transaction.
- The total amount that the importer must pay cannot exceed USD 1 million or 10% of the average import remittances for the previous two fiscal years.
- When an authorized dealer grants such an extension, it must be disclosed.
Important terms for Imports of Goods and Services under Indian FEMA
- Importer – An importer is a person or organization who brings items into the country from another country. An importer might be an individual living in India or a company formed under Companies Act, 2013.
- Seller/Foreign Seller – A seller is someone who sends imported items in return for payment from the importer. Sellers are individuals residing outside of India or companies headquartered outside of India or Foreign Companies.
- Outward Remittance – Funds transmitted from the importer to the seller using standard banking channels via an authorized bank or authorized dealer.
- Authorized Dealer (Category-I) – The Authorized Dealer, often known as the Authorized Bank, is the person in charge of transactions involving the importation of commodities into the nation. This bank handles tasks including sending and receiving remittances on behalf of the importer.
FAQs
What is FEMA?
The Foreign Exchange Management Act (FEMA) is an Indian law that regulates foreign exchange transactions, including payments for imports and exports of goods and services. It aims to facilitate external trade and payments while maintaining the foreign exchange market in India.
What are the rules for imports under FEMA?
FEMA outlines the rules and procedures for making payments for importing goods and services from outside India. It includes guidelines for foreign exchange payments, reporting requirements, and compliance with the Reserve Bank of India (RBI) regulations.
