Foreign Remittance requirements in India

For remittances abroad, you might be required to furnish information in the four forms:

1. Form A2 (Required as per FEMA)2. Application cum Declaration for purchase of foreign exchange under LRS (Required as per FEMA)3. Form 15 CA (Required as per Income Tax Act)4. Form 15 CB (Required as per Income Tax Act)

Your remittances to non-residents abroad will be governed by FEMA (Foreign Exchange Management Act). Additionally, the authorized dealer banks need to ensure that your remittance is in compliance with the Income Tax laws i.e. tax has been duly paid on the funds being remitted and TDS, if any has been deducted.
Further, Remittances under LRS do not require RBI approval. RBI has delegated the power to Authorized dealer banks. Authorized dealer bank has to satisfy itself that the remittance/drawal of foreign currency is not in contravention of FEMA or Income Tax Act.
  • For compliance with FEMA, it may rely on Form A2 and declaration under LRS.
  • For compliance with Income Tax Act, it will rely on Form 15 CA and Form 15 CB, if required.
Earlier, Form A2 was submitted manually with the Authorized dealer bank along with other requisite documents. Now, it will be submitted online along with 
applicable purpose code (Refer the attached Circular for code list).

Change of Process-Foreign Remittance-online Submission of Form A2  

Ther are major changes in rules relating to furnishing of Information in respect of payment to the Non -Resident with effect from 01.04.2016.

Changes in Furnishing Form A2 for Foreign Remittances w.e.f. 01.04.2016:

  • Authorized dealer banks, offering internet banking facility to their customers allow online submission of Form A2 (Application for Remittance Abroad) and also enable uploading/submission of documents, if any. Therefore it is mandatory to file online Form A2.The application cum declaration for purchase of foreign exchange under the Liberalized Remittance Scheme (LRS) of USD 250,000 has been clubbed with Form A2.Form A2 will be submitted to the Authorized dealer bank mentioning the Purpose Code for the remittance.

15CA and 15CB under income tax

Amendment to income tax act and rule 37BB in 2015- extended the reporting requirement to any payment made to a non-resident, whether or not chargeable to tax in India.
A person responsible for making a payment to a non-resident or to a foreign company has to provide the following details –
  
1
When payment made is below Rs 5 lakh
For such payments information is required in Part A of Form 15CA
2
When payment made exceeds Rs 5 lakh
·      Part B of Form 15CA has to be provided
·   Certificate in Form 15CB from chartered accountant
·    Part C of Form 15CA
3
When the payment made is not chargeable to tax under IT Act
·        Part D of Form 15CA
4
In the following cases, no submission of information is required
    • The remittance is made by an individual and it does not require prior approval of Reserve Bank of India [as per the provisions of section 5 of the Foreign Exchange Management Act, 1999 (42 of 1999) read with Schedule III to the Foreign Exchange (Current Account Transaction) Rules, 2000]
    • List of payments of specified nature mentioned in Rule 37BB, which do not require submission of Forms 15CA and 15CB.( has been expanded from 28 to 33 including payments for imports)



Indian PAN mandatory for Non Residents (if receiving payments from Residents in India) Sec 206AA

*Relaxation u/s 206AA  to Non-residents from 20% TDS: 

CBDT has issued notification no. 53/2016 dated 24 June 2016 giving relaxation to Non-residents from furnishing PAN no. in India. TDS at higher rate of 20% will not be deducted if following conditions are satisfied by non-resident:-
Provisions of Sec 206AA shall not apply in respect of payments in the nature of
-  Interest,
-  Royalty,
-  Fees for technical services and
-  Payments on transfer of any capital asset,
if the non-resident furnishes the following details/ documents
(i)   name, e-mail id, contact number;
(ii)  address in the country of which the non-resident is a resident;
(iii) Tax Residency Certificate (TRC) from the Government of that country if the law of that country provides for issuance of such certificate;
(iv) Tax Identification Number (TIN) or any other Unique Identification Number of the non-resident of his residence country.
All the above information needs to be furnished in TDS returns as well.
For example:-  ABC Pvt Ltd is making payment of Interest to X Inc, a US Company who do not have  who do have PAN in India. Higher rate of 20% u/s 206AA will not be applicable if US Company provides Name, E-mail, Contact no, Address of USA, TRC, TIN or SSN of USA.

Applying for PAN (except cases of relaxation as above)

Foreign parties who are receiving payments from India are required to obtain a permanent account number (PAN Number) from the Income Tax Authorities of India.

 According to  section 206AA which was inserted by the Finance (No.2) Act, 2009, it has been clearly stated that all foreign parties whether an individual companies or partnerships or any kind of entity who receive payment from the Indian companies after the period of 1st April 2010 is expected to give their PAN to the Indian party which is remitting that payment.

  Application for allotment of PAN is form 49AA for Non Residents. A check list for obtaining PAN of foreign parties is given below for your reference in addition to checklist provided at the end of the form 

 1.  Notarized and Consularised copy of Certificate of incorporation - COI (specifying the name, address and date of incorporation). Notarization and Consularised shall be done by Indian Embassy in respective countries.
  

2.   In case COI doesn't specify the address of the company, please provide any other certificate (duly Notarized and Consularised by Indian Embassy in that respective country) obtained from competent authority in respective country, specifying the address and date of incorporation.

 3.   A printout of application is required to be signed by the Authorized Signatory of the company. In this regard, please note that:

 Signatures should be made in BLACK ink and within the designated box given in the 'Page 2' sheet. Signatures should not overlap or cross the designated boxes

 Please also affix company stamp at the places of signatures.

 No photograph needs to be attached in case of companies.

 Local address should not be provided since that shall create a PE issue.  Providing details of RA (Representative Assessee) is not mandatory in the PAN application for such applicants. Hence, this column may be left blank.

 If communication Address is outside India (a). The fee for processing PAN application is  962.00[ (Application fee  85.00 + Dispatch Charges  771.00) + 12.36% service tax]. (b). Payment can be made only by way of Demand Draft payable at Mumbai. Demand draft and cheque should be drawn in favour of 'NSDL - PAN'.



Liberalised Remittance Scheme (LRS)
In terms of the extant Reserve Bank of India (RBI) regulations, under the Liberalised Remittance Scheme (LRS), Authorised Dealers may freely allow remittances by resident individuals up to USD 250,000 per Financial Year (April-March) for any permitted current or capital account transaction or a combination of both.
Highlights of LRS
. Under the Liberalised Remittance Scheme, Authorised Dealers may freely allow remittances by resident individuals up to USD 250,000 per Financial Year (April-March) for any permitted current or capital account transaction or a combination of both. The Scheme is not available to corporates, partnership firms, HUF, Trusts, etc.
2. Remittances under the Scheme can be consolidated in respect of family members, subject to individual family members complying with its terms and conditions. However, clubbing is not permitted by other family members for capital account transactions such as opening a bank account/ investment/ purchase of property, if they are not the co-owners/ co-partners of the overseas bank account/ investment/ property. Further, a resident cannot gift to another resident, in foreign currency, for the credit of the latter’s foreign currency account held overseas under LRS.
3. The limit of USD 250,000 per Financial Year (FY) under the Scheme also includes/ subsumes remittances for Current Account transactions (i.e. private visit; gift/ donation; going overseas on employment; emigration; maintenance of close relatives overseas; business trip; medical treatment overseas; studies overseas) available to resident individuals under Para 1 of Schedule III to Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015 dated May 26, 2015. Release of foreign exchange exceeding USD 250,000 requires prior permission from the Reserve Bank of India.
The permissible Capital Account transactions by an individual under LRS are:
1. Opening of Foreign Currency Account overseas with a bank;

2. Purchase of property overseas;

3. Making investments overseas - acquisition and holding shares of both listed and unlisted overseas company or debt instruments; acquisition of qualification shares of an overseas company for holding the post of Director; acquisition of shares of a foreign company towards professional services rendered or in lieu of Director’s remuneration; investment in units of Mutual Funds, Venture Capital Funds, unrated debt securities, promissory notes;

4. Setting up Wholly Owned Subsidiaries and Joint Ventures (with effect from August 5, 2013) outside India for bonafide business, subject to the terms & conditions stipulated in Notification No. FEMA. 263/ RB-2013 dated March 5, 2013;

5. Extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in Companies Act, 2013.



The Finance Act, 2020 has introduced a new provision for collection of taxes at source (TCS) on forex transactions carried out under the Liberalized Remittance Scheme (LRS).
Given below are the new provisions which were introduced by amending the Income Tax Act, 1961 ('Act') (Effective from October 1, 2020):
 
 
i. TCS shall be applicable if aggregate forex purchases in any form during the financial year exceeds INR 7 lacs and where the forex purchase was made under Liberalized Remittance Scheme. Taxes shall be collected at 5% on the amount exceeding INR 7 lacs.
 
ii. In cases where the amount is remitted for the purpose of pursuing education through a loan obtained from a financial institution, the rate of TCS shall be 0.5% on the amount exceeding INR 7 lakhs. Financial institution shall have the same meaning as defined u/s 80E of the Act.
 
 
 
Examples for your easy reference on where TCS is applicable
 
 
 
 
 
 
 
Makes a transaction of INR 6,00,000
 
 
 
 
No tax will be collected
 
 
 
 
Customer 1
 
 
 
 
Makes a transaction of INR 10,00,000
 
 
 
 
5% tax will be collected on INR 9,00,000 (6,00,000 +10,00,000 - 7,00,000=INR 9,00,000)
 
 
 
 
 
 
 
 
 
Makes a transaction of INR 50,000
 
 
 
 
5% tax will be collected on incremental INR 50,000 (as the remitter has crossed INR 7 lacs earlier)
 
 
 
 
Customer 2
 
 
 
 
Makes a transaction of INR 14,00,000 in the same FY
 
 
 
 
5% tax will be collected on INR 7,00,000 (INR 14,00,000 - 7,00,000)
 
 
 
 
Customer 3
 
 
 
 
Makes a remittance of INR 17,00,000 for pursuing Education through a loan obtained from Financial Institution
 
 
 
 
0.5% tax will be collected on INR 10,00,000 (17,00,000 - 7,00,000=10,00,000)