RESERVE BANK OF INDIA
EXCHANGE CONTROL DEPARTMENT
CENTRAL OFFICE
MUMBAI 400 001
A.D. (M.A. Series) Circular No.24 August 6, 1998 To,
All Authorised Dealers in Foreign Exchange
Dear Sir,
Amendments to the Exchange Control Manual (ECM) It has been decided to amend/modify the Exchange Control regulations as set out in the following paragraphs.
1. Interest on Import Bills
In terms of paragraph 7A.12 of ECM, amount of remittance of interest on import bills is required to be endorsed on the Exchange Control copy of the relative import licence. It has now been decided to dispense with this requirement. Accordingly, while payment of interest on import bills may be allowed by authorised dealers in accordance with the provisions contained in abovereferred paragraph, the amount of such interest need not be endorsed on the Exchange Control Copy of the relative import licence.
2. Bill of Entry - Preservation period
In terms of paragraph 7A.20(i) of ECM, importers are required to submit evidence of import in the form of Exchange Control copy of Bill of Entry for Home Consumption/postal wrappers to the authorised dealer through whom the relative remittance was made. Authorised dealers are advised that the Exchange Control copies of Bills of Entry/postal wrappers should be preserved by them for a period of one year from the date of verification thereof as required under paragraph 7A.20(iii) of ECM. In respect of cases which are under investigation by investigating agencies, however, Exchange Control copies of Bills of Entry for Home Consumption/postal wrappers should be preserved till the Investigating Agency gives clearance for their destruction.
3. Import of films
Import of cinematograph feature and video films is in the negative list of import in Exim Policy. The Government of India have, however, issued a Public Notice No.4(PN) 79-02 dated 31st March 1997 in terms of which any agency fulfilling the conditions laid down therein is allowed to import cinematograph feature films and video films either on outright purchase basis or on lease/rental basis on periodical payment terms such as fixed rentals, royalties, service charge, licence fee, profit sharing etc. as agreed upon between the overseas suppliers and Indian importers. In the case of import on outright purchase basis, authorised dealers can allow remittances towards the cost of import of cinematograph feature film and video films under the existing instructions for remittances towards import of goods into India. In case of imports on lease/rental basis it has been decided to permit authorised dealers to allow remittances towards rent, royalty, licence fee, profit, etc. without reference to Reserve Bank, provided the following conditions are fulfilled.
(i) Import is made as per the provisions of Exim (policy in force and a 'No Objection Certificate' (NOC) from Central Board of Film Certification is produced, where required.
(ii) Exchange Control copy of Bill of Entry for Home Consumption is submitted to the authorised dealer in support of import of the films.
(iii) A certified copy of the contract/agreement entered into between the overseas supplier and importer, is filed with the authorised dealer and the remittance is being made in accordance with the terms of the contract/agreement.
(iv) A Chartered Accountant's certificate is produced indicating that the payment to overseas supplier is due and the amount sought to be remitted is as per the terms of contract.
(v) Undertaking/Certificate regarding payment of Income-tax in the prescribed form has been submitted (cf. paragraph 3B.10 of ECM).
4. Claims against Indian Tour Operators/Travel Agents
In terms of item VIII of Part 'B' of Annexure I to Chapter 8 of ECM as amended vide item No.26 of A.D.(M.A. Series) Circular No.21 dated 1st July 1998, authorised dealers have been permitted to allow remittances by Indian Tour Operators/Travel agents up to 10% of the tour cost without any monetary ceiling. It has now been decided to remove the ceiling of 10% on such remittances by Indian Tour Operators/Travel Agents where the claim amount does not exceed U.S.$ 5,000. Accordingly, it will be in order for authorised dealers to allow such remittances by Indian Tour Operators/Travel Agents up to 10% of the cost of tour or U.S.$ 5,000, whichever is higher. The other conditions stipulated in item VIII of Part B of Annexure 1 to Chapter 8, remain unchanged.
5. Investment by Non-Resident Indians/Overseas Corporate Bodies (OCBs)
5.1 In terms of paragraph 10C.3(ii) of ECM, authorised dealers maintaining bank accounts or making investments in the names of OCBs should obtain an undertaking from each such corporate body/trust stating that it will promptly intimate to the authorised dealer concerned if the ownership interest or the irrevocable beneficial interest held by NRIs in the OCB concerned falls below the level of 60% at any time. Authorised dealers should also satisfy themselves that the ownership/beneficial interest held by NRIs in OCBs/Trusts continues to be at or above the level of 60% on the basis of a certificate in Form OAC or OAC1 as appropriate which is required to be submitted to them by OCBs/Trusts on an annual basis. If such ownership/beneficial interest is reduced to a level below 60%, the authorised dealer concerned is required to report the matter to Reserve Bank immediately for instructions together with full particulars of the investments made in India by the OCB/trust in its name.
5.2 It has been brought to our notice that in many cases (i) the OCB placing NRE/FCNR deposits and/or making investment in India is a closely held private corporate body with shareholders being NRIs closely related to each other (usually family members) and (ii) the shares of the OCB of this nature are not quoted. Transfer of ownership of such an OCB does not take place, unless a shareholder (family member) dies, in which case the new shareholder who would be another family member is admitted. With a view to simplifying the procedural aspects in such cases, it has since been decided to waive the requirement of submission of certificates in form OAC/OAC 1 on an annual basis in respect of such closely held companies. Authorised dealers may instead accept every year a simple certificate from the Managing Director/Chief Executive Officer of the OCB to the effect that there is no change in the share holding pattern of the company since submission of the last certificate. The OCB which submits the OAC/OAC 1 for the first time should also produce documentary evidence to show that the shareholders of the company belong to the same family or are closely related to each other. However, if for any reason, the beneficial interest of NRIs in the OCB falls below 60% (i.e. sale by a NRI to a person who is not a NRI), the existing procedure will apply.
6. Remittance of income on investment on non-repatriation basis
Authorised dealers are permitted to grant loans/overdrafts in India to NRIs against the security of their NRE/FCNR deposits for the purposes of making direct investment in India on non-repatriation basis by way of contribution to the capital of Indian firms/companies engaged in manufacturing/industrial activities, hospitals etc., subject to certain conditions. In terms of _sub-paragraph 13B.9(ii)(d) of ECM, neither the investment made out of the loan nor the income accruing therefrom is allowed to be repatriated outside India. Similarly, in terms of sub-paragraph 13B.9(iii)(d) of ECM rental income earned by letting out house/flat acquired/constructed out of the loans obtained by NRIs against security of their NRE/FCNR deposits is not allowed to be repatriated outside India. It is clarified that investment income and rent on immovable property accrued to NRIs being in the nature of current income would be eligible for repatriation in terms of the provision contained in paragraph 10C.24A of ECM.
7. Statement of foreign exchange business
In terms of paragraph 16.8 of ECM, a statement in form FXT showing yearly turnover (April-March) of foreign exchange business on an all India basis is required to be submitted by 30 June every year. It has been decided to discontinue the submission of the statement from the year 1998-99.
8. The following consequential amendments may be carried out in the Exchange Control Manual.
Volume I i) The sentence beginning with the words 'In cases where the imports ...... in the 3rd line and ending with the words 'relative import licence' in the 5th line of paragraph 7A.12 may be deleted.
ii) A new sub-paragraph (vi) may be added to the paragraph 7A.20 as per Slip 1.
iii) A new paragraph 7A.29 may be added as per Slip 2 and its entry made in the Index of Chapter 7.
iv) Item VIII of Part B of Annexure I to Chapter 8 may be substituted as per Slip 3.
v) Paragraph 10C.3(ii) may be substituted as per Slip 4.
vi) Item (d) to paragraph 13B.9(ii) may be substituted as per Slip 5.
vii) Item (d) to paragraph 13B.9(iii) may be substituted as per Slip 6.
viii) The sentence beginning with "Although the investment/principal amount" in the line No.9 of paragraph 10C.24A(i) may be substituted as per Slip 7.
ix) Paragraph 16.8 may be deleted.
9. Authorised dealers may bring the contents of this circular to the notice of all their concerned constituents.
10. The directions contained in this circular have been issued under Section 73(3) of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and any contravention or non-observance thereof is subject to the penalties prescribed under the Act.
Yours faithfully,
KHIZER AHMED
Chief General Manager
Slip 1[AD/MA 24/1998]7A.20
(vi) Exchange Control copy of Bill of Entry for Home Consumption/postal wrappers should be preserved by authorised dealers for a period of one year from the date of its verification as required under paragraph (iii) above. However, in respect of cases which are under investigation by investigating agencies, the Exchange Control copy of Bill of Entry for Home Consumption/postal wrappers should be preserved till the investigating agency concerned gives clearance for destruction.
Slip 2[AD/MA 24/1998] Import of films on lease/rental basis
7A.29 Authorised dealers may allow remittance of rent, royalty, licence fee, profit, etc. in connection with import of cinematograph feature films and video films subject to the following conditions :
(i) Import has been made in accordance with provisions of Exim Policy in force.
(ii) A 'No Objection Certificate' from Central Board of Film Certification, wherever required, has been submitted.
(iii) Exchange Control copy of Bill of Entry for Home Consumption has been submitted as evidence of import.
(iv) The remittance is in accordance with the agreement entered into between the overseas supplier and importer. A certified copy of the contract/agreement should be retained by authorised dealer for record.
(v) A Chartered Accountant's certificate is produced indicating that the payment to overseas supplier is due and the amount sought to be remitted is as per the terms of contract.
(vi) Undertaking/Certificate regarding payment of income-tax has been submitted (cf. paragraph 3B.10).
Slip 3[AD/MA 24/1998]VIII. Claims against Indian Tour Operator/Travel Agent
Documentation
Letter in duplicate from the Indian Tour Operator/Travel Agent indicating total tour cost in respect of which the claim is preferred together with documentary evidence indicating details of receipt of advance payment for individual/group tour and letter from foreign tourist/tour operator seeking the claim and indicating reasons therefor.
Quantum of Exchange
For individual or group tours
Up to 10% of the tour cost or U.S.$ 5,000 whichever is higher.
Slip 4[AD/MA 24/1998] 10C.3
(ii) Authorised dealers maintaining bank accounts or making investments in the names of OCBs should obtain an undertaking from each such corporate body/trust stating that it will promptly intimate to the authorised dealer if the ownership interest or the irrevocable beneficial interest held by NRIs in the OCB falls below the level of 60% at any time. The corporate body/trust should also submit a certificate in form OAC or OAC 1, as appropriate, to the authorised dealer on an annual basis and the authorised dealer should satisfy himself that the ownership/beneficial interest held by NRIs continues to be at or above the level of 60%. If such ownership/beneficial interest is reduced to a level below 60%, the authorised dealer should report the matter to Reserve Bank immediately for instructions together with full particulars of the investments made by the corporate body/trust in its name.
NOTE: In the case of closely held OCBs i.e. where shareholders belong to the same family or are closely related to each other, certificate in form OAC/OAC 1 may be submitted in the first instance alongwith documentary evidence to the effect that the shareholders belong to the same family or are closely related to each other. Annual submission of OAC/OAC 1 thereafter is not necessary and it will suffice if a certificate signed by the Managing Director/Chief Executive Officer of the OCB is submitted stating that there is no change in the shareholding pattern since submission of the last certificate.
Slip 5[AD/MA 24/1998]13B.9(ii)
(d) Investment made out of the loan shall not be allowed to be repatriated outside India at any time in future. (For repatriation of income earned please see paragraph 10C.24A).
Slip 6[AD/MA 24/1998] 13B.9(iii)
(d) The sale proceeds of the house/flat, if sold, will not be allowed to be repatriated outside India. (For repatriation of income earned by way of rent please see paragraph 10C.24A).
Slip 7[AD/MA 24/1998] 10C.24A(i)
Although the investment/principal amount of deposits/loans made/held on non-repatriation basis under these schemes, investment made by NRIs out of rupee loans from banks in India against the security of NRE/FCNR accounts, sale proceeds of the house/flat acquired/constructed out of loans obtained by NRIs against the security of the NRE/FCNR accounts, if sold, continue to be non-repatriable, authorised dealers may allow repatriation of net income/interest earned (i.e. after payment of tax) on these investments/deposits/loans, as also of net income by way of rent earned on house/flat acquired/constructed, in a phased manner as under :
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