RBI UPDATES

AMENDMENT INTO THE REALIZATION PERIOD OF EXPORT PROCEEDS

Those companies who are engaged in the business of export of goods and software are required to realize and repatriate to India the proceeds of export in freely convertible foreign currency within such period and in such manner as may be specified by RBI under Section 8, subsection (6) of Section 10, clause (c) of subsection (2) of Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999).

Mr. Pankaj Singla
Sr. Associate
+919971508320
pankaj@indiacp.com
The period of realization and repatriation to India, for the full value of goods or software exported is twelve months from the date of export which was extended period from original period of six months and was valid till March 31, 2013.

On the expiry of the validity period, RBI vide A.P. (DIR Series) Circular No. 105 dated May 20, 2013, has changed the period of realization and repatriation to India from twelve months to nine months from the date of export, with immediate effect. The relaxation is valid up to September 30, 2013.

ISSUE OF EQUITY SHARES AGAINST PRE-OPERATIVE/PRE-INCORPORATION EXPENSES


Companies incorporated by foreign investors are allowed to issue equity shares against the pre-incorporation expenses incurred by the foreign investors while incorporating a company. For issuance of shares against the pre-incorporation expenses, companies are required to obtain approval from government subject to various conditions. 


One of the conditions of issuance of equity share in this case is that the payment should be received directly from foreign investor of the company and not through any third party in absence of bank account. The Reserve Bank of India vide A.P. (DIR Series) Circular No. 104 dated 17th May, 2013, has amended the condition in respect to the payment made by the foreign investor for pre-incorporation expenses as follows: 


The Amended condition is “Payments should be made by the foreign investor to the company directly or through the bank account opened by the foreign investor as provided under FEMA Regulations.” 


The above amended condition implies that Payment of pre-incorporation expenses should be done as follows:

  1. By the foreign investor directly to company or
  2. By the Bank account opened by the foreign investor.

The amendment has made the payment criteria more transparent and it has simplified the surveillance procedure of Reserve Bank of India. Due to the amendment, all payment in respect to the pre-incorporation expenses will be ensured through foreign investor only and therefore, RBI will required to do KYC of the foreign Investor only and not the third party.
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