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Cross-border transactions call for stringent measures to be taken. Corporates have to go through a process that is cumbersome when it comes to cross-border transactions. An increase in the inbound and outbound process calls for an increase in the level of compliances. Foreign Exchange Management Act, 1999 (FEMA) was introduced to ensure smooth external transactions, maintaining a healthy foreign exchange market, and encourage the importance of the balance of payments.
The mandatory compliances under the provisions of FEMA are as follows:
Every Indian Resident company that has made a Foreign Direct Investment (FDI) in the preceding year, including the current year, must submit the Foreign Liabilities and Assets (FLA) Return. If no such investment is made, then the company is not under any obligation to submit the FLA. Such a return must be submitted every year.
This report is to be submitted by a Resident individual who has made an Overseas Direct Investment (ODI). It is to be provided in Form ODI Part II to the AD (Authorised Dealer) bank regarding Joint Venture or Wholly Owned Subsidiaries outside India on or before 31st December every year.
All borrowers must report all ECB transactions to the RBI through an AD Category – I Bank every month in the Form ‘ECB 2 Return’.
Under the Single Master Form, the following forms are to be filled and submitted.
The RBI has made efforts to integrate the existing reporting norms and set out a procedure for filing a single master form.
An Indian company that receives investment outside India for the issue of shares or other eligible securities under the FDI scheme must report all the details of the amount of consideration to the concerned Regional Office of the Reserve Bank of India through its AD category I bank within 30 days from the date of issue of shares.
The Indian company that receives foreign investment and allots shares against such investment should file such allotment with the RBI. The company must provide details of allotment in the Form FC- GPR (Foreign Currency – Gross Provisional Return) within 30 days of allotment to the RBI.
This form must be filed by the shareholder resident outside India or resident Indian when they transfer the shares of the Indian company from a resident to non-resident Indian or vice versa. The form FC- TRS (Foreign Currency Transfer) is submitted along with the Form FC- GPR to the authorised dealer bank, who in turn submits to the RBI.
A resident Indian individual who makes an overseas investment is required to submit Form ODI. Share certificates or any other documentary evidence received for investment in a foreign Joint Venture or Wholly owned subsidiary must be submitted to the designated AD within 30 days.
Under FEMA, all forex-related offences are civil offences instead of FERA (Foreign Exchange Regulation Act), where all of the offences were considered criminal offences. The other features are as follows:
Capital Account and Current Account – The purpose of the capital account is to adjust the assets and liabilities of individuals outside India to persons residing in India. Thus any transaction that results in a change of the overseas assets and liabilities in India of an Indian residing outside India or transactions overseas of a person residing in India will be considered under the capital account. All other transactions fall under the category of the current account.
The penalty for non-compliances to be charged is up to thrice the sum involved in such contravention or up to Rs 2 lakh. The penalty may extend up to Rs 5,000 for each day post the first day during which the contravention proceeds. Hence, all companies and Indian residents who transact overseas must ensure adherence to the laws under FEMA.
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