FEMA News

New amendment in FEMA:

The amendment to FEMA, 1999 was inserted by 142 of the Finance Bill, 2015 through Section 37A and came into effect from 14th May 2015. The above provision is a sweeping provision and a substantial clause involving civil forfeiture and having wide repercussion such as civil and criminal consequences

Section 37A amendment of FEMA provides that if any person holds any foreign exchange, foreign security or any immovable property outside India (foreign assets) in contravention of Section 4 of FEMA,the equivalent value of property in India can be seized by the Enforcement Directorate and the same will placed before the Competent Authority (Commissioner of Customs) and he will dispose the petition for order of seizure.Any person aggrieved by an order made by the Competent Authority, may prefer an appeal before the Appellate Tribunal, Delhi and then to High Court & Supreme Court.

This provision provides that if the Authorised officer has “reason to believe” that the foreign asset is “suspected to have been held in contravention of FEMA…” the consequences of seizure will follow. This is bad drafting of law. “Reason to Believe” and “Suspicion” does not go together. So there is a serious need for the amendment of Sec 37A of FEMA Act which is in contravention of the Principles of the natural justice.

The major lacuna in the Section is that no opportunity is to the accused before the seizure of assets in India. Hence it violates fundamental principles of natural justice. This power of seizure under FEMA is in addition to the penal action under FEMA i.e. separate adjudication proceedings will be held by the Enforcement Directorate for the penal proceeding which is appealable to the Special Director who is the Commissioner of Income Tax and the final appeal lies with the Appellate Tribunal. Hence for the same offence the accused has to face two different authorities i.e. Commissioner of Customs for the Seizure and the Commissioner of Income Tax for the penal provisions. This gives rise to lot of contradictions by different authorities from the different field especially by the Commissioner of Customs who is no way in aligned with the contraventions.

Any penal consequence should follow if the contravention is proved. One cannot seize property if an officer has mere reason to believe and he just suspects a contravention. Penal consequences should follow only after the contravention is established.

For violation of Section 4 of the Act, penalty up to thrice the value (300%) shall be imposed by the adjudicating authority in terms of Section 13 (1-A). If penalty imposed is not paid within 90 days the person liable shall be liable to civil imprisonment in terms of Section 14(1) of the Act. Further Section 14(2) empowers the Adjudicating Authority to arrest the defaulter for default of payment of penalty. Apart from the above, in terms of Section 13(1B) the Adjudicating Authority may direct prosecution by filing criminal complaint which may result in both imprisonment and fine in terms of Section 13(1C).

LIBERALIZED REMITTANCE SCHEME (LRS)

Due to adverse balance of payment position in International Trade, FERA, 1973 was introduced w.e.f. 01.01.1974. With the advent of Liberalization of Indian Economy in 1991, there was an increase in flow of foreign exchange to India and Foreign exchange reserves have increased substantially. In view of this FERA was replaced by FEMA w.e.f. 01.06.2000. In contrast to FERA, FEMA provides free transactions on current account subject to reasonable restrictions imposed by RBI.

The LRS was introduced in 4 th February, 2004 as a liberalization measure to facilitate resident individuals to remit fund aboard for permitted current or capital account transactions. Under the LRS resident individuals can remit up to USD 2,50,000 per financial year. This limit has been revised in stages consistent with prevailing Macro and Micro Economic conditions. The LRS limit has been increased from USD 25,000 in 2004 to USD 2,50,000 in 2015. This scheme is available to resident individuals only and not to Corporate, Partnership firms, HUF, Trust, etc.,

The permissible capital account transactions are opening of account in aboard, purchase of property in aboard, making investments in shares in aboard, setting up of joint ventures in aboard, loans to NRI who are relatives in aboard.

Presently LRS is mainly used for studies, business trip, medical treatment in aboard, etc. Before the introduction of FEMA even for sending money for studies etc., one has to get approval from RBI. Recent statistics shows 25% increase foreign studies and hence the remittance under LRS is proportionately increased.

For remittance under the scheme the resident individual has to furnish a Form as per RBI Circular and Pan Number is mandatory for all remittance. The bank is required to ensure that KYC Guidelines has been implemented. If the resident individual is a new customer the bank has to carry out due diligence on the person. The bank should also obtain previous bank statements to verify the source of income. If it is not available the copies of the income tax returns filed has to be obtained. No credit facility should be extended by the Bank for the remittance under LRS. The payment should be received only through Cheque or Demand Draft. Bank should not advertise or solicit for LRS.