21 October 2008
I have taken commodity forward but due to price fall i want to cancel this forward. As a result of cancellation the differnce of loss has to paid.Is such remittance allowed under RBI regulation?
19 July 2024
Yes, remittance for settling a loss arising from the cancellation of a commodity forward contract due to price fall is generally allowed under RBI regulations, provided certain conditions are met. Here’s a detailed explanation:
### 1. RBI Regulations on Remittance for Commodity Derivatives:
- **Authorized Dealers**: Any remittance related to commodity derivatives, including settlements due to cancellation of contracts, must typically be routed through authorized dealers (banks authorized by the RBI to deal in foreign exchange).
- **Documentation**: The remittance process requires proper documentation, such as invoices or contracts showing the nature of the transaction (in this case, the cancellation of the forward contract due to price fall).
- **Compliance with FEMA**: The Foreign Exchange Management Act (FEMA) governs such remittances. It mandates that remittances should be in compliance with the rules and regulations prescribed by the RBI. These regulations are aimed at ensuring transparency and adherence to foreign exchange management norms.
### 2. Process for Remittance:
- **Reporting**: Ensure that the remittance is reported to the authorized dealer along with necessary documentation. This helps in compliance with regulatory requirements and facilitates the outward remittance process.
- **Documentation**: Provide the authorized dealer with documents supporting the cancellation and settlement of the forward contract, including details of the loss incurred due to the price fall.
- **Tax Compliance**: Ensure that any applicable taxes, such as withholding tax on the remittance, are paid and reported to the tax authorities as per the Income Tax Act, 1961.
### 3. Professional Assistance:
- **Consultation**: It’s advisable to consult with a tax advisor or a professional who specializes in foreign exchange regulations (FEMA compliance) to ensure that all regulatory requirements are met before proceeding with the remittance.
### Conclusion:
Remittance for settling losses arising from the cancellation of a commodity forward contract due to price fall is generally allowed under RBI regulations, provided the transaction is reported to an authorized dealer and complies with FEMA guidelines. Ensure proper documentation and compliance with tax laws to facilitate a smooth remittance process.
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