Top Stories FEMA 2024: Analyzing New Amendments to Foreign Exchange Management Act The article analyzes the important amendments to the Foreign Exchange Management Act (FEMA) 2024. By Kavi Priya – On December 3, 2024 1:56 pm – 5 mins read The Foreign Exchange Management Act ( FEMA ) of 1999 is the backbone of India’s foreign exchange regulation. In 2024, multiple amendments were introduced to improve compliance processes, increase transparency, and better align India’s financial regulations with global practices. Let us analyze the important amendments to the Foreign Exchange Management Act ( FEMA ) 2024. Foreign Exchange (Compounding Proceedings) Rules, 2024 The Foreign Exchange ( Compounding Proceedings ) Rules, 2024, notified through G.S.R. 566 (E) on September 12, 2024, replace the previous 2000 rules. The new framework governs the compounding of contraventions under the Foreign Exchange Management Act, 1999 ( FEMA, 1999 ), except for those under Section 3(a).

Below are the important provisions: Authorities and their powers: RBI Officers: Up to ₹60 lakh: Assistant General Manager ( AGM ) or higher. ₹60 lakh to ₹2.5 crore: Deputy General Manager ( DGM ) or higher. ₹2.5 crore to ₹5 crore: General Manager ( GM ) or higher. Above ₹5 crore: Chief General Manager ( CGM ). DOE Officers: Up to ₹5 lakh: Deputy Director. ₹5 lakh to ₹10 lakh: Additional Director. ₹10 lakh to ₹50 lakh: Special Director. ₹50 lakh to ₹1 crore: Special Director with Deputy Legal Adviser. Above ₹1 crore: Director with Special Director. Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here Application and Procedure Application Format: Must be submitted in the prescribed form along with a fee of ₹10,000 plus GST. Processing Time: Applications must be decided within 180 days. Opportunity to be Heard: Applicants are granted a hearing to present their case. Documentation: Authorities can request additional information or actions related to the contravention. Non-Compoundable Cases: Certain contraventions are excluded, including: Violations under Section 37A ( e.g., asset seizure in foreign jurisdictions ). Money laundering, terrorism financing, or cases affecting national security. Cases already adjudicated or requiring further investigation by the DOE. Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here Payment and Consequences: Compounded sums must be paid within 15 days of the compounding order via approved electronic payment methods. Failure to pay invalidates the application, and the contravention remains unresolved.

If a contravention is compounded before adjudication, no further inquiry or legal proceedings will be initiated for the same matter. Once compounded, the individual is discharged from the contravention, and the compounding authority must notify the adjudicating authority. Applications pending before the enforcement of these rules will now be governed by the 2024 rules. Directions on Compounding of Contraventions Under FEMA, 1999 The Foreign Exchange ( Compounding Proceedings ) Rules, 2024, announced on September 12, 2024, allow the Reserve Bank of India (RBI) to resolve certain violations under FEMA, 1999, except for specific cases under Section 3(a). These rules replace the old 2000 guidelines and focus on improving compliance by requiring Authorized Dealers (ADs) to strengthen their internal controls. The RBI can impose penalties for failing to follow its directions or not submitting required returns. Banks and other authorized entities must share these updated rules with their customers to ensure compliance. 2. Foreign Exchange Management (Deposit) Regulations, 2024 The Fourth Amendment to FEMA Deposit Regulations introduces flexibility for non-residents engaging in India’s financial markets. Interest-Bearing Accounts: Non-residents can now open accounts in Indian Rupees or foreign currencies.

These accounts can be used to post and collect margins for derivative contracts. Compliance: Transactions must adhere to the Foreign Exchange Management (Margin for Derivative Contracts) Regulations, 2020. 3. Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2024 Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here This amendment introduces Schedule XI, which governs the direct listing of Indian companies on international exchanges. Permissible Transactions: Payment for equity purchases must be routed through authorized banking channels or remittances. Sale proceeds can be remitted abroad or retained in permissible accounts. Compliance: Indian companies must report such transactions to the RBI through their Authorized Dealers. 4. Foreign Exchange Management (Foreign Currency Accounts) Regulations, 2024 Amendment to Regulation 5 The updated regulation allows funds raised by Indian residents through the following methods to be held in foreign currency accounts outside India: External Commercial Borrowings ( ECBs ). American Depository Receipts ( ADRs ). Global Depository Receipts ( GDRs ).

Direct listing of equity shares on international stock exchanges. Funds may remain in these accounts pending their utilization or repatriation to Indi, subject to compliance with the conditions specified for these fundraising methods. Effective from April 23, 2024. Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here 5. Foreign Exchange Management (Non-Debt Instruments) Amendment Rules, 2024 Definitions Updated for International Exchange, Listed Indian Company, Permissible Jurisdiction. Direct Listing on International Exchanges: Public Indian companies can directly list equity shares or offer equity shares of existing shareholders on international exchanges under the Direct Listing of Equity Shares of Companies Scheme ( Schedule XI ). Conditions: Compliance with sectoral caps, prohibited activities, and other regulatory norms. Shares must be in dematerialized form and have equal rights as those listed in India. Prior government approval is required where applicable. Eligibility for Companies and Shareholders Companies: Must not be under investigation or debarred by regulators. Directors and promoters must not be associated with entities barred from accessing the capital market. It cannot be willful defaulters or fugitive economic offenders. Shareholders: Must meet similar conditions as companies to offer shares on international exchanges. Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here 6.

Reporting of Foreign Exchange Transactions to Trade Repository The Reserve Bank of India ( RBI ) expanded the scope of reporting to the Trade Repository ( TR ) managed by the Clearing Corporation of India Ltd. ( CCIL ). This amendment shows comprehensive monitoring of foreign exchange ( FX ) transactions. Instruments Included: Inter-bank FX contracts. Foreign exchange spot, tom (next-day settlement), and cash transactions. Client FX contracts with transaction thresholds. Phased Implementation: Inter-bank FX contracts are to be reported starting February 10, 2025. Client transactions exceeding $1 million are to be reported from May 12, 2025. Client transactions exceeding $50,000 are to be reported from November 10, 2025. Reporting Timelines: INR transactions must be reported in hourly batches. Non-INR contracts executed by 5 p.m. are due by 5:30 p.m. Others must be submitted by 10 a.m. the next business day. Client contracts are to be reported by 12 noon the following business day. Accuracy and Reconciliation: Authorized Dealers must reconcile balances with the TR and conduct concurrent audits. The accuracy of data is critical, as overseas counterparties are not required to match transactions. 7.

Directions to IBUs for Foreign Currency Accounts (FCA) Under LRS The International Financial Services Centres Authority ( IFSCA ) now permits Foreign Currency Accounts ( FCA ) under the Liberalised Remittance Scheme ( LRS ) for Indian residents. These accounts, managed by International Financial Services Centre Banking Units ( IBUs ), enhance offshore financial flexibility. Permitted Transactions: Receipt of remittances under LRS from India and abroad. Deployment of funds for declared purposes in the LRS return. Compliance Measures: Funds must be reinvested or repatriated within 180 days if unutilized. Transactions must comply with AML/KYC Guidelines, 2022. Domestic transactions between residents through FCAs are prohibited. Financial Product Usage: FCAs can be used for investments in permissible financial products within IFSCs, such as fixed deposits with a maximum tenure of 180 days. Funds can also be remitted to foreign jurisdictions, except those flagged by the Financial Action Task Force ( FATF ). 8. Updates to the Liberalised Remittance Scheme (LRS) The Reserve Bank of India ( RBI ) has updated reporting requirements under the Liberalised Remittance Scheme ( LRS ) for Authorized Dealer Category-I ( AD Category-I ) banks: Monthly LRS Returns Discontinued: Effective September 2024, AD Category-I banks no longer need to submit monthly returns ( R089 ).

Daily Transaction-Wise Reporting: Banks must now report transaction details daily (R010) via the Sankalan platform ( https://sankalan.rbi.org.in ). A ‘NIL’ report is required if no transactions occur. Withdrawal of Previous Circulars: Earlier reporting guidelines under multiple circulars have been withdrawn. Compliance: Banks must inform constituents and update systems to comply with the revised reporting framework. Legal Basis: The changes are implemented under Sections 10(4) and 11(1) of FEMA, 1999. 9. Instructions on Money Changing Activities From July 1, 2024, new regulations for Full-Fledged Money Changers ( FFMCs ) and non-bank Authorized Dealers ( ADs ) focus on optimal utilization of foreign currency. Minimum Sale Requirement: At least 75% of foreign currency purchased must be sold to the public for permitted purposes. Compliance: FFMCs and ADs must maintain detailed records and undergo annual audits. Idle reserves are discouraged to improve efficiency.