Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023: A Simplified Overview of Changes
Introduction: The Reserve Bank of India (RBI) recently issued a pivotal notification, No. FEMA 14(R)/2023-RB, dated 20.12.2023, heralding the arrival of the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023. This comprehensive update replaces its predecessor from 2016, bringing about noteworthy amendments to streamline foreign transactions.
Regulation 3 - General Provisions:
- No person in India is now allowed to make or receive payments from a person outside India unless sanctioned by RBI or permitted under FEMA.
- All transactions between a person in India and a person outside India must be routed through an Authorized Bank or Authorized Person.
Categories of Transactions:
1. Trade Transactions:
1.1. Receipt and Payment from Nepal and Bhutan:
- Notably, payments to and from Nepal and Bhutan for eligible goods and services must now be exclusively made in Indian Rupees. However, a significant change allows exports from India to Nepal to be in foreign currency, subject to approval by the Nepal Rashtra Bank.
1.2. Receipt and Payment from ACU Member Countries (excluding Nepal and Bhutan):
- The revised regulations dictate that payments for eligible goods and services to ACU member countries must be routed through the ACU mechanism or as per explicit RBI directives. A crucial alteration is the provision allowing imports from ACU member countries, where the supplier is a non-ACU member, to permit payments in INR or any foreign currency.
1.3. Receipt and Payment from Countries outside ACU:
- The regulations now permit payments for eligible goods and services to or from countries outside ACU to be made in Indian Rupees or any foreign currency.
2. Transactions Other than Trade Transactions:
2.1. Receipt and Payment from Nepal and Bhutan:
- The revamped regulations specify that payments for transactions outside trade activities with Nepal and Bhutan must exclusively be made in Indian Rupees. However, a noteworthy change allows for foreign currency payments for overseas investments in Bhutan.
2.2. Receipt and Payment from Countries other than Nepal and Bhutan:
- For transactions outside trade activities with countries other than Nepal and Bhutan, payments can now be made in Indian Rupees or any foreign currency.
3. Current Account Transactions:
- In a significant change, the regulations now mandate that for any current account transaction (excluding trade), payments and receipts between a resident in India and a person visiting from outside India must be made solely in Indian Rupees. Additionally, payments can also be facilitated through a bank account in accordance with the rules and regulations.
Conclusion: The Foreign Exchange Management Regulations, 2023, usher in pivotal changes, providing a clearer framework for making and receiving payments in various scenarios. These modifications, as outlined in the RBI Notification dated 20.12.2023, seek to simplify and enhance the efficiency of foreign transactions for individuals and businesses alike.
