Write-off” of unrealized export bills –Simplification of procedure

Write-off” of unrealized export bills – UNDER AUTOMATIC ROUTE

Export of Goods and Services – Simplification of procedure

 

Attention of Authorized Dealer Category – I (AD Category –I) banks is invited to A.P. (DIR. Series) Circular No. 12, 30, 61, 40, 33 and 03 dated September 09, 2000, April 04, 2001, December 14, 2002, December 05, 2003, February 28, 2007 and July 22, 2010 respectively in terms of which the exporters were given limited powers of write-off and also AD Category – I banks have been permitted to accede to the requests for "write-off" made by the exporters, subject to the conditions, inter alia, that the exporter had to surrender proportionate export incentives, if availed of, in respect of the relative shipments.

2. With a view to further simplifying and liberalizing the procedure and for providing greater flexibility to all exporters as well as the Authorized Dealer banks, the earlier instructions have been reviewed. It has now been decided to effect, subject to the stipulations regarding surrender of incentives prior to”write-off” adduced in the A.P. (DIR Series) Circular No. 03 dated 22 July 2010, the following liberalization in the limits of “write-offs” of unrealized export bills:

1. Self “write-off” by an exporter
   (Other than Status Holder Exporter) ----------------------------------------------------- 5%*
   
2. Self “write-off” by Status Holder Exporters ------------------------------------------ 10%*
   
3. ‘Write-off” by Authorized Dealer bank ------------------------------------------------ 10%*
   *of the total export proceeds realized during the previous calendar year.

3. The above limits will be related to total export proceeds realized during the previous calendar year and will be cumulatively available in a year.

4. The above “write-off” will be subject to the following conditions:

(a) The relevant amount has remained outstanding for more than one year;

(b) Satisfactory documentary evidence is furnished in support of the exporter having made all efforts to realize the dues;

(c) The case falls under any of the undernoted categories :

(i)	The overseas buyer has been declared insolvent and a certificate from the official liquidator indicating that there is no possibility of recovery of export proceeds has been produced.
(ii)	The overseas buyer is not traceable over a reasonably long period of time.
(iii)	The goods exported have been auctioned or destroyed by the Port / Customs / Health authorities in the importing country.
(iv)	The unrealized amount represents the balance due in a case settled through the intervention of the Indian Embassy, Foreign Chamber of Commerce or similar Organization;
(v)	The unrealized amount represents the undrawn balance of an export bill (not exceeding 10% of the invoice value) remaining outstanding and turned out to be unrealizable despite all efforts made by the exporter;
(vi)	The cost of resorting to legal action would be disproportionate to the unrealized amount of the export bill or where the exporter even after winning the Court case against the overseas buyer could not execute the Court decree due to reasons beyond his control;
(vii)	Bills were drawn for the difference between the letter of credit value and actual export value or between the provisional and the actual freight charges but the amount has remained unrealized consequent on dishonour of the bills by the overseas buyer and there are no prospects of realization.
(d)	The exporter has surrendered proportionate export incentives (for the cases not covered under A. P. (DIR. Series) Circular No.03 dated July 22, 2010), if any, availed of in respect of the relative shipments. The AD Category – I banks should obtain documents evidencing surrender of export incentives availed of before permitting the relevant bills to be written off.
(e)	In case of self write-off, the exporter should submit to the concerned AD bank, a Chartered Accountant’s certificate, indicating the export realization in the preceding calendar year and also the amount of write-off already availed of during the year, if any, the relevant GR / SDF Nos. to be written off, Bill No., invoice value, commodity exported, country of export. The CA certificate may also indicate that the export benefits, if any, availed of by the exporter have been surrendered.

5. However, the following would not qualify for the “write off” facility :

1. Exports made to countries with externalization problem i.e. where the overseas buyer has deposited the value of export in local currency but the amount has not been allowed to be repatriated by the central banking authorities of the country.
   
2. GR / SDF forms which are under investigation by agencies like, Enforcement Directorate, Directorate of Revenue Intelligence, Central Bureau of Investigation, etc. as also the outstanding bills which are subject matter of civil / criminal suit.

6. The respective AD banks may forward a statement in form EBW, in the senclosed format, to the Regional Office of Reserve Bank under whose jurisdiction they are functioning, indicating details of write-offs allowed under this circular.

7. AD banks are advised to put in place a system under which their internal inspectors or auditors (including external auditors appointed by authorised dealers) should carry out random sample check / percentage check of “write-off” outstanding export bills.

8. Cases not covered by the above instructions / beyond the above limits, may be referred to the concerned Regional Office of Reserve Bank of India.

Ref-

RBI/2012-13/435 A.P. (DIR Series) Circular No. 88 dated 12 March 2013

NOW, COMPANIES UNDER INVESTICATIONS BY DIRECTOR OF ENFORCEMENT CAN AVAIL ECB UNDER AUTOMATIC ROUTE !!!

NOW, COMPANIES UNDER INVESTICATIONS BY DIRECTOR OF ENFORCEMENT CAN AVAIL ECB UNDER AUTOMATIC ROUTE !!!

As per the extant guidelines, corporates that are under investigation by any law enforcing agencies like the Directorate of Enforcement (DoE), etc. are not allowed to access ECB under the Automatic route. Any request by such corporates for ECB is examined by the Reserve Bank under the approval route.

On a review, it has been decided to permit all entities to avail of ECBs under the automatic route as per the current norms, notwithstanding the pending investigations / adjudications / appeals by the law enforcing agencies, without prejudice to the outcome of such investigations / adjudications / appeals.

  Accordingly, in case of all applications where the borrowing entity has indicated about the pending investigations / adjudications / appeals, Authorised Dealers while approving the proposal shall intimate the concerned agencies by endorsing the copy of the approval letter. The same procedure will be followed by the Reserve Bank of India also while approving such proposals.

All other aspects of the ECB policy, under the Automatic route such as amount of ECB, eligible borrower, recognised lender, end-use, all-in-cost ceiling, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged.

Ref- A.P. (DIR Series) Circular No. 87 dated 5th March 2013

Issues relating to Tax Deducted at Source on ECB interest Payments

Issues relating to Tax Deducted at Source   on ECB interest Payments

 

From April 1, 2010, under Section 206A of the I- T Act, any person entitled to receive a sum or income or amount on which tax is deductible in these cases is required to furnish his PAN to the person responsible for deducting such tax. If the PAN isn’t there, tax has to be deducted at 20 per cent.

 

The Finance Act, 2012, introduced Section 194LC in the I- T Act, providing for a lower withholding tax at five per cent on interest payments by Indian companies on borrowings made in foreign currency by such companies from a source outside India.

If an ECB lender obtains a PAN number in India , then the Indian borrower company has to deduct only 5% of Income Tax by way of Tax Deductible at source in India.

Thus, the income-tax paid in India on behalf foreign company for ECB interest payments  can be offset by the foreign company in their jurisdiction if there is relevant provision under Double Taxation Avoidance Agreement .(DTAA) .

But it is observed that if a foreign lending company do not want to get a PAN number in India , then , it has to pay a 20% tax in India as TDS.

In practice , most of the foreign ECB lenders to Indian companies do not prefer to get a PAN number in India for the best reasons known to them. As such , they have to pay higher TDS as per the extant provisions.

Industry has approached to find suitable alternative for PAN registration by foreign lenders who advances ECB to Indian companies so that they can pay just 5% TDS on interest payments instead of TDS of 20% without PAN number in India.

Indian Government is actively considering the same .

 

Now , Bangladesh Nationals can open an NRO Bank Account in India under Automatic Route

Opening of NRO accounts by individuals of Bangladesh Nationality

Attention of all the Authorised Dealer banks and Authorised banks (Authorised banks) is invited to Paragraph 1 of Schedule-3 of Foreign Exchange Management (Deposit) Regulations, 2000 contained in Notification No. FEMA.5/2000-RB dated May 3, 2000, as amended from time to time, in terms of which opening of Non-Resident Ordinary Rupee (NRO) accounts by individuals/ entities of Bangladesh/ Pakistan nationality/ ownership requires approval of Reserve Bank.

2. The extant instructions have been reviewed and it has been decided that henceforth, Authorised banks would be permitted to open NRO account of individual/s of Bangladesh nationality without the approval of the Reserve Bank subject to the following conditions:

1. The bank concerned should satisfy itself that the individual is holding valid visa and valid residential permit issued by Foreigner Registration Office (FRO)/Foreigner Regional Registration Office (FRRO) concerned;
   
2. The Authorised bank should put in place a system of quarterly reporting whereby each branch of the Authorised bank shall maintain a record of the bank accounts opened by individual/s of Bangladesh nationality and details of such account shall be forwarded to their Head Office. The Head Office of the bank shall furnish details of such accounts on quarterly basis to the Under Secretary (Foreigners), Ministry of Home Affairs, NDCC-II Building, Jai Singh Road, New Delhi - 110 001. E Mail.
   
3. The report shall contain details of Name/s of the Individual/s, Date of arrival in India, Passport No. and Place/Country of issue, Residential permit reference and date and place of issue, Name of the FRO/ FRRO concerned and the Complete address and contact number of the branch where the bank account is being maintained.

3. Opening of accounts by entities of Bangladesh ownership shall continue to require approval of Reserve Bank, as hitherto.
4. Necessary amendments to the Notification No. FEMA.5/2000-RB dated May 3, 2000 have been issued vide Notification No.FEMA.253/2013-RB dated January 02, 2013

Ref:A.P.(DIR Series) Circular No. 82 dated 11 February 2013

EEFC ACCOUNT HOLDERS ARE NOW PERMITTED TO ACCESS THE FOREX MARKET FOR PURCHASING THE FOREX EVEN IF THEY HAVE BALANCE IN EEFC ACCOUNTS

EEFC ACCOUNT HOLDERS ARE NOW PERMITTED TO ACCESS THE FOREX MARKET FOR PURCHASING THE FOREX EVEN IF THEY HAVE BALANCE IN EEFC ACCOUNTS

 

 

Attention of Authorised Dealer (AD) Category - I banks is invited to A.P. (DIR Series) Circulars Nos. 15, 124, 128, 8 and 12 dated November 30, 2006, May 10, 2012, May 16, 2012, July 18, 2012 and July 31, 2012 respectively, in terms of which all the foreign exchange earners were permitted to retain their foreign exchange earnings in EEFC account subject to certain conditions with an Authorized Dealer (AD) Category - I bank in India.

2. Keeping in view the operational difficulties faced by the account holders and the Authorized Dealer banks, as a measure of rationalization, it has been decided to dispense with the stipulation made in A.P. (DIR Series) Circular No. 124 dated May 10, 2012, that EEFC account holders henceforth will be permitted to access the forex market for purchasing foreign exchange only after utilizing fully the available balances in the EEFC accounts.

 

Ref _ A.P.(DIR Series) Circular No. 79  dated January 22, 2013

Now , Hotel project total project cost of INR 250 crore or more avail ECB to repay their high Cost Rupee Loan or to incur fresh Rupee capital expenditure

Now , Hotel project total project cost of INR 250 crore or more avail ECB to repay their high Cost Rupee Loan or to incur fresh Rupee capital expenditure

As per the extant guidelines, Indian companies in the manufacturing and infrastructure sector (as defined under the extant ECB policy), which are consistent foreign exchange earners, are allowed to avail of ECBs for repayment of outstanding Rupee loan(s) availed of from the domestic banking system and / or for fresh Rupee capital expenditure.

On a review, it has been decided to include Indian companies in the hotel sector (with a total project cost of INR 250 crore or more), irrespective of geographical location as eligible borrowers under this scheme.

 

AD may certify the project cost at the time of forwarding the ECB application to the Reserve Bank.

 

REF:A.P. (DIR Series) Circular No.78 dated January 21, 2013

Common Types of Reporting Failures by Indian Companies and their Authorised Dealers to RBI under FEMA

Common Types of Reporting Failures by Indian Companies and their Authorised Dealers to RBI under FEMA .

In terms of Section 11 (2) of FEMA, 1999, the Reserve Bank may, for the purpose of ensuring the compliance with the provisions of the Act or of any rule, regulation, notification, direction or order made thereunder, direct any authorized person to furnish such information, in such manner, as it deems fit. Accordingly, RBI has entrusted to the Authorised Dealers (ADs) the responsibility of complying with the prescribed rules/ regulations for the foreign exchange transactions and reporting the same as per the directions issued from time to time.

During the compounding process, on a number of occasions, it has been brought to our notice by the applicants that the contraventions of the provisions of FEMA by corporates and individuals are due to the acts of omission and commission of the Authorised Dealers and some of the applicants have also produced documentary evidence in support of their claim. Such contraventions being dealt with by the Reserve Bank mainly relate to:

• Draw down of External Commercial Borrowing (ECB) without obtaining Loan Registration Number (LRN) [Regulations 3 and 6 of FEMA 3/2000];
• Allowing draw down of ECB under the automatic route from unrecognised lender, to ineligible borrower, for non-permitted end uses, etc. [Regulations 3 and 6 of FEMA 3/2000];
• Non-filing of form ODI for obtaining UIN before making the second remittance to overseas WOS/JV for Overseas Direct Investment (ODI) [Regulation 6(2)(vi) of FEMA 120/2004];
• Non-submission of Annual Performance Reports (APRs) / copies of Share Certificates to the AD (and non-reporting thereof by the AD to Reserve Bank) in respect of overseas investments [Regulation 15 of FEMA 120/2004];
• Delay in submission of the Advance Reporting Format in respect of Foreign Direct Investment (FDI) to the concerned Regional Office of the Reserve Bank [paragraph 9 (1) (A) of Schedule I to FEMA 20/2000];
• Delay in filing of details after issue of eligible instruments under FDI within 30 days in form FC-GPR to the concerned Regional Office of the Reserve Bank [paragraph 9 (1) (B) of Schedule I to FEMA 20/2000];
• Delay in filing of details pertaining to transfer of shares for FDI transactions in form FC-TRS by resident individual/companies [Regulation 10 (A) (b) of FEMA 20/2000]; etc.

From the data on compounding cases received by Reserve Bank, it is observed that more than 70% of the total cases pertain to FDI within which about 72% relate to delay in advance reporting/ submission of FCGPR. In the case of ECB, 24% of the cases received relate to drawdown without obtaining LRN. Similarly, 66% of the ODI cases relate to non-reporting of overseas investments online. Authorised Dealers have an important role to play in avoidance of such contraventions and accordingly, the dealing officials in the banks need to be sensitised and trained to discharge this function efficiently.

All the transactions involving Foreign Direct Investment (FDI), External Commercial Borrowing (ECB) and Outward Foreign Direct Investment (ODI) are important components of our Balance of Payments statistics which are being compiled and published on a quarterly basis. Any delay in reporting affects the integrity of data and consequently the quality of policy decisions relating to
capital flows into and out of the country. Authorised Dealers are, therefore, advised to take necessary steps to ensure that checks and balances are incorporated in systems relating to dealing with and reporting of foreign exchange transactions so that contraventions of provisions of FEMA, 1999 attributable to the Authorised Dealers do not occur.

In this connection, it is reiterated that in terms of Section 11(3) of FEMA, 1999, the Reserve Bank may impose on the authorized person a penalty for contravening any direction given by the Reserve Bank under this Act or failing to file any return as directed by the Reserve Bank.

Ref-A.P. (DIR Series) Circular No. 76 January 17, 2013

issue of equity shares/ preference shares under the Government route by conversion of import of capital goods - Amendments

Issue of equity shares/ preference shares under the Government route by conversion of import of capital goods - Amendments

Now, no Shares in the Indian company can be allotted for the seller ofthe second hand imported machinaries . Only foreign suppliers of new machinaries are eligible for issue of Equity shares with the Repatriation benefits under government approval route .

The following is the changes made in the circular  A.P. (DIR Series) Circular No. 74 dated June 30, 2011 read with A.P. (DIR Series) Circular No. 55 dated December 9, 2011.

.(DIR Series) Circular No. 74 dated June 30, 2011	Earlier Condition	Revised condition
Para 3(I)	Import of capital goods/ machineries/equipments (including second-hand machineries),	Import of capital goods/ machineries/equipments (excluding second-hand machineries),
Para 3(I)(b)	There is an independent valuation of the capital goods / machineries / equipments (including second-hand machineries) by a third party entity, preferably by an independent valuer from the country of import along with production of copies of documents /certificates issued by the customs authorities towards assessment of the fair-value of such imports; Ref: A. P. (DIR Series) Circular No.74 dated 10th January 2013	There is an independent valuation of the capital goods / machineries / equipments (excluding second-hand machineries) by a third party entity, preferably by an independent valuer from the country of import along with production of copies of documents /certificates issued by the customs authorities towards assessment of the fair-value of such imports; 

External Commercial Borrowings (ECB) Policy – Non-Banking Financial Company – Infrastructure Finance Companies (NBFC-IFCs)- Further Relaxation

External Commercial Borrowings (ECB) Policy – Non-Banking Financial Company – Infrastructure Finance Companies (NBFC-IFCs)- Further Relaxation

 

 

As per the extant guidelines, Non-Banking Finance Companies (NBFCs) categorized as Infrastructure Finance Companies (IFCs) by the Reserve Bank and complying with the norms prescribed in the DNBS Circular DNBS.PD.CC.No.168/ 03.02.089/2009-10 dated February 12, 2010 are permitted to avail of ECBs, including the outstanding ECBs, up to 50 per cent of their owned funds under the automatic route. ECBs by IFCs above 50 per cent of their owned funds are being considered under the approval route. The permitted end-use should be for on-lending to the infrastructure sector, as defined under the extant ECB policy. IFCs should also hedge their currency risk in full.

 

On a review, it has been decided to enhance the ECB limit for NBFC-IFCs under the automatic route from 50 % of their owned funds to 75 % of their owned funds, including the outstanding ECBs. NBFC-IFCs desirous of availing ECBs beyond 75 % of their owned funds would require the approval of the Reserve Bank and will, therefore, be considered under the approval route.

4. It has also been decided to reduce the hedging requirement for currency risk from 100 per cent of their exposure to 75 per cent of their exposure.

5. Designated Authorized Dealer banks should ensure compliance with the extant norms while certifying the ECB application both under the automatic and approval routes. Designated AD Category – I banks shall continue to certify the leverage ratio (i.e. outside liabilities/owned funds) of NBFC-IFCs desirous of availing ECBs under the approval routewhile forwarding such proposals to the Reserve Bank of India as per A.P. (DIR Series) Circular No.70 dated January 25, 2012.

Simplification and Revision of Softex Procedure at SEZs for all Designated Centers of STPIs ,SEZs, EPZs , EOU and DTA

Attention of the Authorised Dealer Banks is invited to Regulation 6 of the Notification No. FEMA 23/2000-RB dated May 3, 2000 viz. Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, as amended by the Notification No.FEMA.36/2001-RB dated February 27, 2001, in terms of which designated officials of the Ministry of Information Technology/ Ministry of Commerce and Industry(as the case may be), Government of India at the Software Technology Parks of India (STPIs) or at Free Trade Zones (FTZs) or Export Processing Zones (EPZs) or Special Economic Zones (SEZs), had been authorized to certify exports declared through SOFTEX Forms.

2. A revised Softex procedure was first introduced at the 5 designated centres of STPIs from April 1, 2012 vide A.P. (DIR Series) Circular No.80 dated February 15, 2012 and subsequently extended to all STPIs in India vide A.P. (DIR Series) Circular No.47 dated October 23, 2012.

3. It has now been decided to implement the revised Softex procedure at all SEZs/EPZs/100%EOU/DTA also with immediate effect.



4. As per the revised procedure, a software exporter either under STPIs or SEZs/EPZs/100%EOU/DTA, whose annual turnover is at least Rs.1000 crore or who files at least 600 SOFTEX forms annually on all India basis, will be eligible to submit statements in revised excel format sheets as per enclosed Annexures A & B. All other terms and conditions mentioned in the A.P. (DIR Series) Circular No.80 dated February 15, 2012 applicable to exporters of software situated in STPIs would remain unchanged.

Ref- A.P. (DIR Series) Circular No. 66 dated 1st January 2013