BFM-Module: A- EXCHANGE CONTROL REGULATIONS

Exchange control was first introduced in India on Sept 3, 1939. Subsequently it was brought under Foreign Exchange Regulation Act, 1973. At present it is regulated through FEMA 1999.

The objectives of ECR  are

a conservation of foreign exchange;

b proper accounting of foreign exchange receipts and payments; c stabilizing the external value of the rupee;

d to prevent flight of scarce capital by control over remittances abroad and supervision of accounts of non- residents, so that the balance of payments deficit does not occur or does'not worsen;

e to check smuggling;

f to fulfil IMF obligations .

LIBERALISED REMITTANCE SCHEME (LRS) FOR RESIDENT INDIVIDUALS

RBI introduced LRS on Feb 04, 2004. Major changes were made by RBI in LRS w.e.f. 01.06.2015 (based on Govt. notification 15.05.15).

Eligibility: All resident individuals including minors and non-individuals are eligible.

·      Remittances under the facility can be consolidated in respect of family members subject to individual family members complying with the terms and conditions.

·      It is mandatory to have PAN number to make remittances.

Forex can be purchased from authorised person which indude AD Category-1 Banks, AD Category-2 and Full Fledged Money Changers.

Capital Accounts transactions Remittances up to USD 250,000 per financial year can be allowed for permissible capital account transactions as under: I) opening of foreign currency account abroad; ii) purchase of property abroad;

ill) making investments abroad;

iv)       setting up Wholly owned subsidiaries and Joint Ventures abroad;

v)        loans including in Indian Rupees to Non-resident Indians relatives as defined in Companies Act, 2013.

Current account transactions • : All facilities (Including private/business visits) for remittances have been subsumed under overall limit of USD 250,000/FY.

Facilities for Individuals

1. Individuals can avail of forex facility for the following purposes within the limit of USD 250000. Additional remittance shall require prior approval of RBI.

1.        Private visits to a country (except Nepal & Bhutan)

2.        Gift or donation.

3.        Going abroad for employment or immigration.

4.        Maintenance of close relatives abroad

5.        Travel for business, or attending a conference or specialized training or for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up.

7. Expenses for medical treatment abroad

B. Studies abroad

9. Any other current account transaction

Exception : For immigration, medical treatment and studies abroad, the individual may avail of exchange facility in excess of LRS limit if required by a country of emigration, medical institute offering treatment or the university, respectively.

Facilities for persons other than individual The following remittances shall require RBI approval:

(i)  Donations beyond 1% of forex earnings in previous 3 FY or USD 5000000, whichever is less, for:

a)        creation of Chairs in reputed educational institutes,

b)       contribution to funds (not being an investment fund) promoted by educational institutes; and

c)        technical institution/body/ association in the field of activity of the donor Company.

(ii)  Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India exceeding USD 25,000 or 5% of inward remittance whichever is more.

(iii)  Remittances exceeding USD 10000000 per project for any consultancy services for infrastructure projects and USD 1,000,000 per project, for other consultancy services procured from outside India.

(iv)  Remittances exceeding 5% of investment brought into India or USD 100,000 whichever is higher, by an entity in India by way of reimbursement of pre-incorporation expenses.

Mode of remittance: The Scheme can be used for outward remittance in the form of 'a DD either in the resident

individual's own name or in the name of beneficiary with whom he intends putting through the permissible transactions at the time of private visit abroad, can be effected, against self declaration of the remitter in the format prescribed.

Loan facility : Banks should not extend any kind of credit facilities to resident individuals to facilitate remittances under the Scheme.

Remittances not available under the scheme:

i.       Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery/sweep stakes, tickets, prescribed magazines etc.) or item restricted under Schedule II of FEMA (Current A/c Transactions) Rules, 2000.

ii.      Remittances made to Bhutan, Nepal, Mauritius or Pakistan.

iii.      Remittances made to countries identified by the Financial Action Task Force (FATF) as "non co-operative countries and territories" as available on FATF website (viz Cook Islands, Egypt, Guatemala, Indonesia, Myanmar, Nauru, Nigeria, Philippines and Ukraine) or as notified by RBI.

iv.     Remittances to individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by RBI to the banks.

Reporting of the transactions: The remittances made will be reported in the R-Return in the normal course. The ADs may also prepare and keep on record dummy Form A2, in respect of remittances exceeding USD 5000.

With effect from 01.07.13, the banks are required to upload the data in Online Return Filing System (OAFS) on a monthly basis, by 5th of the following month to which it relates. Where there is no information, 'nil' figure is to be uploaded.

Rules related to release / remittance of foreign exchange to residents

AD banks can release forex to residents in India as per Rules framed u/s Sec 5 of FEMA. Forex cannot be released for Schedule I transactions. For Schedule II transactions, Govt. permission is required. For Schedule III transactions, forex can be released up to specified limit by AD banks. Beyond that limit, approval of RBI is required.

Ceilings on release of amount by ADs without RBI approval are given above, under LRS.

Nepal & Bhutan - Forex for any kind of travel to or for any transaction with persons resident in Nepal and Bhutan cannot be released. Any amount of Indian currency can be used. Highest denomination of currency note can be Rs.100.

Up to Rs.25000, any denomination is allowed.

Form of foreign currency: 1. Coins, currency notes and traveller's cheques. Currency notes/coins can be up to US$ 3000. The balance can be traveller's cheque or banker's draft.

2.                For Iraq and Libya currency notes and coins can be obtained up to US$ 5000 or its equivalent.

3.                For Iran, Russian Federation, and other Republics of Commonwealth of Independent Countries, no ceiling. Mode of purchase: In cash up to Rs.50,000/-. Above this, payment by way of a crossed cheque/banker's cheque/pay order/demand draft / debit card / credit card only.

Surrender of unused forex: Currency notes and travellers' cheques within 180 days of return.

Retention of unused forex : US$2,000 or its equivalent. There is no restriction on residents for holding foreign currency coins.

Use of International Credit Card (ICC): Use of the ICCs / ATMs/ Debit Cards can be made for personal payments and for travel abroad for various purposes, only up to specified limits.

Export / Import of Indian currency by Residents or non-residents : Up to Rs. 25000 each to or from any country other than Nepal or Bhutan (Pakistan & Bangladesh  Rs.10000).

Import of Foreign exchange from abroad: Any amount subject to declaration on CDF.

Mandatory CDF : Where total amount exceeds US$ 10,000 (or its equivalent) and/or value of foreign currency notes exceeds US$ 5,000, declaration should be made to the Customs Authorities through Currency Declaration Form (CDF), on arrival in India.

Application for purchase of FC : Form A2. It is not required up to $ 25000. A2 to be preserved by banks for one year for verification by Auditors. endorsement on Passport : It is not mandatory for Authorised Dealers to endorse the amount of foreign exchange sold for travel abroad on the passport of the traveller. However, if requested by the traveller, AD may record under its stamp, date and signature, details of foreign exchange sold for travel.

Inward Remittance

1.         Any person foreigner or Indian coming to India can bring any amount of foreign exchange in India.

2.         If foreign currency being brought is more than US$ 5000 or foreign currency and traveler cheque is more than US $ 10,000, then the person bringing forex should make declaration before Customs on the Currency Declaration form. If it is not submitted to Customs, then it can be submitted to Authorised Dealer while surrendering foreign exchange.

3.         Unspent Foreign exchange should be surrendered within 180 days of arrival in India whether it is foreign currency or foreign traveler cheque.

4.         A resident individual can retain up to US $ 2000. There is no limit on coins.

5.         Indian rupees can be brought up to Rs 25000.

6.         Full fledged Money Changers (FFMCs) are permitted to encash foreign currency and make cash payment only up to USD 3000 or its equivalent. Amount exceeding USD 3000 or its equivalent has to be paid by way of demand draft or bankers' cheque. RBI has allowed banks to credit proceeds of demand drafts / bankers' cheques issued against encashment of foreign currency to the NRE account of the NRI account holder where the instruments issued to the NRE account holder are supported by encashment certificate issued by AD Category — I / Category

— II.

7.         Exchange regulations are not applicable in case of remittance to or from Nepal and Bhutan. Therefore, forex can neither be taken to nor brought from Nepal and Bhutan. Indian rupees can be taken to Nepal and Bhutan in the denomination of Rs 100 or below.

Non Residents and their Accounts

Resident: As per section 2(v) of the FEMA 1999, a person is called resident in India if he stays in India for more than 182 days during the preceding financial year except those who have gone out of India for taking up employment outside India or for carrying on a business or vocation 'outside India or for any other purpose indicating his intention to stay abroad for indefinite period.

Non Resident: Person resident outside India means a person who is not resident in India. NRI has been defined in Income Tax Act.

RBI definition of NRI: However, as per RBI guidelines, a non resident Indian can be a person of Indian Nationality or a person of Indian Origin.

Person of Indian Nationality (PIN): A Person of Indian Nationality is one who holds an Indian passport at the time of opening the account.

Person of Indian Origin: A Person of Indian Origin is one who is presently not a national of Pakistan or Bangladesh and : (a) who at anytime held an Indian passport; or (b) he himself, either-of his parents or any of his grand parents was a citizen of India by virtue of Constitution of India or the Citizenship Act,1955 ; or (c) the person is a spouse of Person of Indian Nationality / Origin.

Overseas Corporate Bodies are those in which at least 60% shareholding is of NRI. OCBs are not allowed to open NRI accounts.

Students  who go abroad for studies have also been given the facility of opening NRI accounts.

Non resident accounts are of 3 types (a) Non Resident ordinary (b) Non Resident (External) (c) Foreign Currency Non Resident (Bank) account. Salient features of these accounts are as under

Non Resident Ordinary account:

1.              Type of account: Saving, Current, FD and RD

2.              Credit: can be local income as well as remittance from abroad.

3.              Currency of deposit Indian Rupees

4.              Period of Deposit and interest rate : Fixed deposit can be opened for 7 days to 10 years and interest rate as applicable to domestic deposits

5.              Joint account allowed with residents as well non residents (NRO is the only account which can be opened jointly with residents)

6.              Interest income is taxable and tax will be deducted at source irrespective of type of account and amount of interest. The rate of tax on interest on deposits out of foreign remittance is 20% and on deposits from local income is 30%. Surcharge and education cess will be extra.

7.                 Power of Attorney is allowed to residents  for making local payments. Power of Attorney can undertake all focal payments in rupees including payments for eligible investments subject to compliance with relevant regulations made by the Reserve Bank; and Remittance outside India of current income in India of the nonresident individual account holder, net of applicable taxes. The resident Power of Attorney holder is not permitted to repatriate outside India funds held in the account other than to the non-resident individual account holder nor to make payment by way of gift to a resident on behalf of the non-resident account holder or transfer funds from the account to another NRO account.

8.  Repatriation is allowed as per following details: (i) Remittance outside India of current income like rent, dividend, pension, interest, etc. in India of the account holder. (ii) Remittance up to USD one million, per financial year (April- March), for all bonafide purposes, to the satisfaction of the authorised dealer bank. (iii) sale proceeds of immovable property up to US $ 10 lakh per financial year without waiting for 10 year period.

Non Resident (External) and Foreign Currency Non Resident (Bank) account

There are certain common features in these accounts like

1.                         Credits: Only amount received from abroad can be credited to these accounts.

2.                         Joint account is allowed only with Non residents and not allowed with residents.

3.                         Power of attorney is allowed to residents. He can make local payments. POA can remit money abroad if permitted by Power of Attorney.

4.                         Maximum loan against NRE and FCNR(B) is allowed up to Rs 100 lakh.

5.                         Interest income is free of Income tax and therefore tax is not deducted at source

6.                         Repatriation: Entire balance including interest can be repatriated abroad.

Distinctive features of NRE & FCNR

item	NRE	FCNR(B)
Currency of Deposit	In Indian Rupees	In USD,GBP,Yen & Euro, Can dollar, MS dollar
Type of account	savings, term deposit, current, RD	only term deposit
Exchange Risk	Exchange risk borne by account holder(s)	Exchange risk borne by the account opening bank
Period of                      Fixed Deposit	FD normally for 1 to 3 years in all currencies but for USD,GBP & EURO –upto five years	FD for 1 to 5 years
Interest Rate	In term deposit,                                    rate     of      interest. should not exceed Domestic Rupee deposits and Banks are free to decide Rate of Interest.      points. In         case    of SB       as        applicable        in domestic deposits.	Rate      of    interest      should      not              exceed LIBOR/SWAP for                   USD   for   1-3 years maturity plus   200 basis Points and above 3 years                                    maturity  plus 300 basis LIBOR for concerned currency and maturity period plus 100 basis points
Periodicity of interest	Quarterly	After every 180 days

1.                   If NRE is opened for more than 3 years, the interest payable will as applicable for 3 years

2.                   Banks can grant loans against NR(E)RA and FCNR(B) deposits either to the depositors or third parties up to a maximum limit of Rs.100-Iakh. Banks should not undertake artificial slicing of the loan amount to circumvent the aforesaid ceiling.

3.                   If FCNR(B) is up to one year, no compounding is allowed_

4.                   In both NRE and FCNR deposits, if there is premature payment before one year no interest is allowed. If there is premature payment after one year, penalty as per bank discretion.

5.                   For converting NRE to FCNR, TT selling rate will be applicable and for converting FCNR to NRE, TT buying rate will be applicable.

Foreign Currency accounts of residents

Foreign currency accounts of residents are of three types namely (a) Resident Foreign Currency

account (b) Resident Foreign currency (domestic) account (c) Exchange Earners Foreign Currency account. Salient features of the same are given as under:

Resident Foreign Currency Account:

1.                Who can open: This account can be opened by a resident individual who was NRI and returned to India after minimum stay of one year abroad.

2.                Source of funds: Foreign exchange received as pension or other benefits from employer; realization of assets held abroad, proceeds of FCNR/NRE_

3.                Joint account with residents or non residents is not allowed.

4.                Type of deposit: Saving, current and fixed deposit.

5.                Loan is not allowed against deposit.

6.                Period of deposit, interest rate on deposit and currency of deposit : as decided by bank

Resident Foreign Currency (Domestic) account:

1.                         Who can open: Account can be opened by any resident individual.

2.                         Type of account: Non interest bearing current account.

3.                            Credits: Forex acquired on visit abroad, from any person on visit to India or gift or honorarium for services, gift or honorarium on a visit abroad, unspent forex acquired during travel abroad.

4.                         Joint account with resident or non resident not allowed.

5.                         Repatriation is allowed for permissible current and capital account transactions.

Exchange Earners Foreign Currency account:

1.            Who can open: The account can be opened by any resident. This account will be opened by exporters. 2.   Type of account: Non interest bearing current account (up to 31.10.08 FD account was also allowed)  3.    Credits: 100% of foreign exchange earnings can be credited to this account.

4.                                           Repatriation is allowed for permissible current account transaction and permissible capital account transaction.

5.                                           Packing credit can be adjusted out of such funds.

Export Credit

Export credit is allowed in two stages namely pre shipment or packing credit and post shipment. Salient features of packing credit are as under:

2. For packing credit eligibility conditions are (a) Exporter should have Import Export Code Number (b)Exporter should not be on the caution list of RBI (c) Exporter should not be on the specific approval list of ECGC (d) He should have confirmed order of LC. However, if running packing credit facility has been allowed confirmed order can be submitted later on.

2.                            Amount of PCL: on the basis of FOB value

3.                            Period of PCL: As per need of exporter. If pre-shipment advances are not adjusted by submission of export documents within 360 days from the date of advance, the advances will cease to qualify for prescribed rate of interest for export credit to the exporter ab initio.

Adjustment of PCL: Normally through proceeds of export bills or export incentives or debit to EEFC account.

Post shipment credit

1.                            As per Exchange Control Regulations, bills should be submitted for negotiation within 21 days of shipment.

2.                            Export proceeds should in general be realized within 12 months from date of shipment. (Earlier it was 6 months and for status holder exporters, 100% EOU, units in EHTP/STP, the period was 12 months from the date of shipment). In case of export for warehousing the period of realization is 15 months. In case of exports by units in Special Economic Zone there is no maximum period prescribed by RBI.

3.                            Authorised Dealer can grant extension up to 6 months if invoice amount is up to USD 1 million.

4.                                           If any export is not realized within 180 days of date of shipment, in all cases, a report should be sent to RBI on XOS statement which is a half yearly statement submitted as at the end of June & Dec of each year. This is to be submitted by 15th of July / January.

5.                            Normal Transit Period is the period between negotiation of bills and credit to Nostra account. It is fixed by FEDAI and presently it is 25 days irrespective of the country.

Interest Rate on Export Credit

1.  Export credit in rupees: Interest rates applicable for all tenors of rupee export credit advances sanctioned on or after July 01, 2010 will be at or above Base Rate. Interest Rates under the BPLR system effective upto June 30, 2010 will be 'not exceeding BPLR minus 2.5 percentage points per annum' for the following categories of Export Credit:

·Pre-shipment Credit (from the date of advance) : (a) Up to 270 days (b)Against incentives receivable from Government covered by ECGC Guarantee up to 90 days. If pre-shipment advances are not liquidated from proceeds of bills on purchase, discount, etc. on submission of export documents within 360 days from the date of advance, the advances will cease to qualify for prescribed rate of interest for export credit ab initio.

·Post-shipment Credit (from the date of advance): (a) On demand bills for transit period (as specified by FEDAI); (b) Usance bills (for total period comprising usance period of export bills, transit period as specified by FEDAI, and grace period, wherever applicable): i) Up to 180 days; ii) Up to 365 days for exporters under the Gold Card Scheme.

(a) Against incentives receivable from Govt. (covered by ECGC Guarantee) up to 90 days (d) Against undrawn balances (up to 90 days); (e) Against retention money (for supplies portion only) payable within one year from the date of shipment (up to 90 days) (f) In respect of overdue export bills also interest rate should be charged at not more than BPLR minus 2.5% up to 180 days from date of advance.

2.  Export Credit in Foreign Currency:

·Pre-shipment Credit in foreign currency (from the date of advance): (i) up to 180 days not more than LIBOR/ EURO LIBOR/ EURIBOR plus 200 basis points. (ii) Beyond 180 days and up to 360 days: Rate for initial period of 180 days prevailing at the time of extension plus 200 basis points. (iii) Beyond 360 days as per bank  discretion

·Post shipment in foreign currency: (a) On. demand bills for transit period: Not exceeding 200 basis points over LIBOR/EURO LIBOR/EURIBOR. (b) Against usance bills for total period comprising usance period of export bills, transit period and grace period up to 6 months from the date of shipment: Not exceeding 200 basis points over LIBOR/EURO LIBOR/EURIBOR (c) Export Bills (Demand or Usance) realized after due date but up to date of crystallization: 200 basis points over the rate charged up to due date.

Interest Subvention on export credit in rupees:

The Government of India has decided to extend Interest Subvention of 2% from April 1, 2010 upto March 31, 2011 on pre and post shipment rupee export credit, for certain employment oriented export sectors as under: (i) Handloom (ii) Handicrafts (iii) Carpets (iv) Small & Medium Enterprises, (v) Leather and Leather Manufactures (vi) Jute Manufacturing including Floor covering

(vii) Engineering Goods (viii) Textiles. The items marked bold added vide circular dated 9th Aug 10. However, the total subvention will be subject to the condition that the interest rate, after subvention will not fall below 7% which is the rate applicable to the

agriculture sector under priority sector lending. The interest subvention will be available even in cases where Base Rate system has been introduced and banks can grant export credit below Base Rate after considering subvention provided it is not less than 7% p.a.

Export Refinance

1.          Who will provide? Export Refinance is provided by RBI.

2.          Maximum period of refinance is 180 days.

3.          Extent of Refinance: 15% (w.e.f. 27.10.2009) of eligible export finance outstanding on the reporting Friday of the preceding fortnight. Outstanding Export Credit for the purpose of working out refinance limits will be aggregate outstanding export credit minus export bills rediscounted with other banks/Exim Bank/Financial Institutions, export credit against which refinance has been obtained from NABARD/Exim Bank, pre-shipment credit in foreign currency (PCFC), export bills discounted/rediscounted under the scheme of 'Rediscounting of Export Bills Abroad', overdue

rupee export credit and other export credit not eligible for refinance.

4.          Interest rate is Repo Rate.          5. Packing Credit in Foreign Currency is not eligible for export refinance.

Export Declaration Forms for goods and services

Every exporter of goods or software in physical form or through any other form, either directly or indirectly, to any place outside India, other than Nepal and Bhutan, shall furnish to the specified authority, a declaration in one of the forms set out below containing the full export value of the goods or software.

a)          Form GR: To be completed in duplicate for export otherwise than by Post including export of software in physical form i.e. magnetic tapes/discs and paper media.

b)          Form SDF: To be completed in duplicate and appended to the shipping bill, for exports declared to Customs Offices notified by the Central Government which have introduced Electronic Data Interchange (EDI) system for processing shipping bills notified by the Central Government.

c)          Form PP:   To be completed in duplicate for export by Post.

d)          Form SOFTEX: To be completed in triplicate for declaration of export of software otherwise than in physical form, i.e. magnetic tapes/discs, and paper media.

Declaration forms are submitted in two copies except Softex forms which are submitted in three copies. As per current guidelines no declaration is mandatory for exports with value up to $ 25,000 or its equivalent. Duplicate copy of the declaration form which is submitted to the AD is-now required to be retained by the AD for the purpose of audit and not to be forwarded to RBI.

Gold Card Scheme for Exporters

1.     Exporters with good track record eligible for the Card. Their account should have been Standard for 3 years continuously with no irregularity.

2.     Gold Card Scheme is not applicable to those exporters who are blacklisted by ECGC or included in RBI's defaulter's list/ caution list or making losses for the past three years or having overdue export bills in excess of 10 per cent of the 'previous year's turnover'. However, RBI has advised (Oct 09) that in view of difficulties faced by exporters on account of weakening of external demand and in realizing the dues within the stipulated time, the requirement of overdue export bills not exceeding 10% of the previous year's export turnover, has been dispensed with for one year

i.e. from April 1, 2009 to March 31, 2010.

3.     Limits to Card holder exporters to be sanctioned for 3 years with provision for automatic renewal subject to fulfilment of terms and conditions. For disposal of fresh applications the period is 25 days, 15 days for renewal of  limits and 7 days for sanction of ad-hoc limits.

1.     A stand by limit of not less than 20% of the limits sanctioned should be made available for executing sudden orders.

2.     Gold Card holder exporters will be given preference in,the matter of sanction of PCFC.

3.     Gold Card holders are entitled for concessional interest on post shipment credit up to 365 days.

Trade and Exchange Control Regulations for Imports

1.       Importer can import goods either on the basis of OGL or on the strength of specific import licence issued by DGFT. While issuing letter of credit or retiring import bills, the AD is required to make relative endorsement in the exchange control copy of import licence. When fully utilized, it is to be retained by the AD for verification by the auditor/inspector.

2.       Payment for imports should be made within 6 months from date of shipment.

3.         Advance payment against imports is allowed up to any amount. However, where the amount of advance, remittance for services exceeds US $ 500,000 or its equivalent, or for goods exceeds USD 50,00,000, the same can be allowed against guarantee of an international bank of repute or guarantee of a bank in India against counter guarantee of an international bank. However, in respect of Public Sector Company or a Department/ Undertaking of the Government of India/ State Governments, approval from the Ministry of Finance, Government of India is required for advance remittance for import of goods or services without bank guarantee for an amount exceeding USD 100,000.

4.    Bill of Entry is documentary evidence of physical arrival of goods into India. For advance remittance exceeding US $ 1,00,000, it should be submitted within 6 months of remittance. In case importer does not furnish the same within 3 months from the date of remittance, the Authorised Dealer should rigorously follow-up for the next 3 months. AD is required to submit to RBI, statement on form BEF on half- yearly basis (within 15 days from the close of the half-year) as at the end of June & December of every year, in respect of importers who have defaulted in submission of Bill of entry within 6 months from the date of remittance.

5.    Delinking or Crystallisation of Export and Import bills: Crystallisation means converting a foreign currency liability to rupee liability. In the case of overdue export bills it will be done as per bank discretion and exchange rate will be TT selling rate. In the case of import bills conversion will be at Bills selling rate. In demand bills it will be on 10th day and in case of usance bills it will be done on due date.

6.    Banks are permitted to make remittances for imports, where the import bills I documents have been received directly by the importer from the overseas supplier and the value of import bill does not exceed USD 300,000.

7.    Banks are allowed to issue guarantees in favour of a non-resident service provider, on behalf of a

resident customer who is a service importer, for an amount up to USD 500,000 or its equivalent. In the case of a Public Sector Company or a Department/ Undertaking of the Government of India/ State Governments, approval from the Ministry of Finance, Government of India for issue of guarantee for an amount exceeding USD 100,000 or its equivalent would be required.

8.                   For release of forex for imports, application should be made on Form Al if the amount of remittance exceeds USD 500. For release of forex for purpose other than import, application should be made on Form A2 if the amount of remittance is more than USD 5000.

Risk in Foreign Exchange

1.              Risk in foreign exchange arises when a bank has open position in forex i.e either it is overbought or oversold. A bank is said to be overbought when purchase is more than sale and it is oversold when sale is more than purchase.

2.              When a bank is overbought and it wants to square its position it will gain if rate of forex goes up and will lose if rate of forex goes down.

3.              When a bank is oversold and it wants to square its position, it will gain if rate of forex goes down and will lose if rate of forex goes up.

4.              The Daylight open position will be generally more than the overnight open position.

INTERNATIONAL COMMERCIAL TERMS (INCOTERMS)

INCO terms are a series of international sales terms, published by International Chamber Of Commerce (ICC) and widely used in international commercial transactions. These are accepted by governments, legal authorities and practitioners worldwide for the interpretation of most commonly used terms in international trade. This reduces or removes altogether, uncertainties  arising from different interpretation of such terms in different countries. They closely correspond to the U.N. Convention on contracts for the international sale of goods. The first version of INCO terms was introduced in 1936. INCO terms 2010 (8th edition) were published on Sept 27, 2010 and these came into effect wef Jan 1, 2011. Main changes in

INCOTERMS 2010

1.       Removal of 4 terms (DAF, DES, DEQ and

DDU) and introduction of 2 new terms (DAP - Delivered at Place and DAT - Delivered at Terminal). As a result, there are a total of 11

terms instead of 13 (2 additions, DAP and DAT and 4 deletions, DAF, DDU, DEQ and DES).

1.       Creation of 2 classes of INCOTERMS - (1)

rules for any mode or modes of transport and (2) rules for sea and inland waterway [INCOTERMS 2000 had 4 categories namely E (covering departure), F (covering main carriage unpaid), C (covering main carriage paid) and D (covering arrival)].

Class-1 INCO terms

1.      EXW means that a seller has the goods ready for collection at his premises (works, factory, warehouse, plant) on the date agreed upon. The buyer pays transportation costs and bears the risks for bringing the goods to their final destination. This term places the greatest responsibility on the buyer and minimum obligations on the seller.

2. FCA — Free Carrier (named places) : The seller hands over the goods, cleared for export, into the custody of the first carrier (named by the buyer) at the named place. This term is suitable for all modes of transport, including carriage by air, rail, road, and containerized / multi-modal sea transport.

3.   CPT — Carriage Paid To (named place of destination): (The general/containerized/multimodal equivalent of CFR) The seller pays for carriage to the named point of destination, but risk passes when the goods are handed over to the first carrier.

4.   CIP — Carriage and Insurance Paid (To) (named

place of  destination): Thecontainerized transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier,

5.   DAP : delivered at place

6.   DAT I. delivered at terminal

7.   DDP — Delivered Duty Paid (named destination place): This term means that the seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty. Also used interchangeably with the term "Free Domicile". It is the most comprehensive term for the buyer. In most of the importing countries, taxes such as (but not limited to) VAT and excises should not be considered prepaid being handled as a "refundable" tax. Therefore VAT and excise usually are not representing a direct cost for the importer since they will be recovered against the sales on the local (domestic) market.

Class-2 INCO terms

8.  FAS — Free Alongside Ship (named loading port): The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export. Suitable for maritime transport only but NOT for multimodal sea transport in containers. This term is typically used for heavy-lift or bulk cargo.

9.   FOB — Free on board (named loading 'port): The seller must themselves load the goods on board the ship nominated by the buyer, cost and risk being divided at ship's rail. The buyer must instruct the seller the details of the vessel and port where the goods are to be loaded, and there is no reference to, or provision for, the use of a carrier or forwarder.

10.CFR or CNF — Cost and Freight (named destination port): Seller must pay the costs and freight to bring the goods to the port of destination. The risk is transferred to the buyer once the goods have crossed the ship's rail. Maritime transport only and Insurance for the goods is NOT included. Insurance is at the Cost of the Buyer.

CIF — Cost, Insurance and Freight (named destination port): Exactly the same as CFR except that the seller must in addition procure and pay for insurance for the buyer (Maritime transport only).

Contract	Seller, in addition to cost of goods, bears	Buyer bears
Ex-Works (EXW)	Goods available at factory _	All cost of insurance and freight subsequent to seller's factory.
Free     alongside the ship (FAS)	Cost     relating to   place   the goods alongside the ship	All cost relating to loading, insurance and freight after these are placed along the ship
Free on Board (FOB)	Cost up to loading the goods on the ship	All cost relating to insurance and freight once these are on board of the ship
Cost & Freight (C&F)	After shipment, cost of freight also	Insurance
Cost,     insurance   & freight (CIF)	Subsequent to shipment insurance and freight cost	His cost starts after the goods reach the port of destination.