Foreign Portfolio Investment

FEMA Guidelines: Inward Remittance

In the era of globalization, it is very common for people to move from one country to another to live and especially for employment. India is one of the country’s which remits most of the money from abroad. Reserve Bank of India^[1] (RBI) and Foreign Exchange Management Act (FEMA) has rules which govern the flow of money in and out of India.

What is Inward Remittance?

Inward remittance means a process where the money gets transferred into an account either domestically or internationally. The term foreign inward remittance refers to money sent into an account by someone from abroad. The Remittances of money into India are governed by the Foreign Exchange Management Act (FEMA).

At the time of remittance of money from one country to another i.e. from a foreign country to Home Country a certificate is issued i.e. FIRC (Foreign Inward remittance certificate) as this is a document issued by banks as proof of a transfer of funds from overseas to India. It’s used as evidence of money flowing in and out of the country and helps make sure that funds come from legitimate sources, and don’t have links to crime or terrorism.

What are the details required for inward remittance?

Following details are required if a person is expecting a remittance of money and is required to provide the below-mentioned details to the sender /remitter to make sure that the money which is being remitted arrives safely in his/her account. Every bank requires different details and information, but the below-mentioned details are the basic details that are required from every bank-

• Personal details of the receiver i.e. full name and address
• Details of Bank i.e. name, address and account number
• SWIFT code of the receiver’s bank
• Purpose of the remittance
• Correspondent bank details – if these are needed you can find them online on your bank’s website or by contacting your bank directly.

What are the compliances under FEMA -Inward remittance?

The compliances under FEMA^[2] cover all forms of foreign exchange transactions and remittance payments. In case of remittance of money, there are various guidelines and rules which apply if an individual wants to move money in or out of India.

In India, the rules for inward remittance are prescribed by the RBI and FEMA, as India is one of the countries which receive the most money in the form of remittances. It is because the large number of NRIs (Non-Indian Resident) are living and working overseas and sending money back in India to help out their family, and also NRIs who have chosen to invest in businesses or property in India.

There are two types of different routes offered by the RBI (Reserve Bank of India) to send money back to India from overseas –

• Rupee Drawing Arrangement (RDA)

There is no cap to the amount of money that can be transferred for personal transactions under the RDA route but there is a limit in case of business transfer.

• Money Transfer Service Scheme (MTSS)

Under MTSS remittances the transactions are capped at USD2,500 per transfer, and a maximum of 30 transfers a year to a single recipient.

In India, Both RDA and MTSS payments must be made via authorized agents, and the process is tightly regulated.

As part of FEMA, there are some restrictions on foreign exchange that are detailed and quite wide-ranging, Restrictions are also on bringing Indian and foreign money in and out of the country.

Every drawl of foreign exchange as per Rule 5 of the Foreign Exchange Management (Current Account Transactions) Amendment Rules included in Schedule III shall be governed by the RBI. However, this rule shall not be applicable where the payment is made out of funds held in RFC (Resident Foreign Currency) account.

Also, Read: FEMA Compliance which Must be Followed.

What transactions are included in Schedule III?

Individuals can avail of foreign exchange facility for the following purposes within the limit of USD 2,50,000 only. Additional remittance above the said limit for the following purposes shall require prior approval of the Reserve Bank of India-

• Private Visits by an individual to any country (except Nepal and Bhutan).
• Gift or Donation
• Going abroad for employment
• Emigration
• Maintenance of close relatives abroad.
• Expenses in connection with medical treatment/check-up.
• Studies abroad.

What is LRS?

LRS means Liberalized Remittance Scheme, Under the scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible account whether(current or capital account transaction or a combination of both).

LRS Scheme was introduced on February 4, 2004, with a limit of USD 25,000. The scheme of LRS has been revised from time to time to and the limit has been revised in stages consistent with prevailing macro and micro-economic conditions.

The LRS declaration form must be countersigned by the minor’s natural guardian, In case of remitter being a minor. The Scheme is not available to corporate, partnership firms, HUF, Trusts, etc.

What is FIRC in case inward remittance?

FIRC (Foreign Inward remittance certificate) is a document that acts as a proof that all incoming international transfers ended up in the account where they are supposed to get transferred. It’s kind of a receipt which is used as proof that an individual or a business has received a transfer from outside of India.

FIRC contains the following details-

• Name of the Beneficiary
• Name of the person who sent the money along with his/her address.
• Name of the recipient of the funds
• Details whether the amount is paid by cash or to the person’s bank account.
• Name and address of the bank who processed the foreign transaction
• Details of the Demand Draft (DD) or Telegraphic Transfer (TT) number or Cheque number
• The amount denominated in that foreign currency
• Amount denominated in rupee equivalent (both fully written out and using just numerals)
• The Details of the exchange rate that was applied to the transaction
• The purpose of the remittance.

Conclusion

FEMA provides a legal framework for the administration of the foreign exchange transactions and various rules and regulation governs the inward and outward remittance to India. The regulations are being made in such a way to make sure that money being sent out of the country does not come from crime and has been used for the Illegal purposes which as a result should not affect the economy of India.

Our Recommendation: FEMA Contravention and Penalties.