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FEMA, Current Account Transaction.

sssvkSridharan R. (CA (Final) Salem. Tamilnadu. sssvksridhar@yahoo.co.in) (218 Points)

17 May 2011

Dear Colleages,

As per Rule 3 of the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2001, a person can not draw foreign exchange for any of the transaction specified in the Schedule I, one of which is

“Payment of commission on exports made towards equity investment in joint ventures/wholly owned subsidiaries abroad of Indian companies.”

Can any one explain the above transaction with example, please…..

Regards,

Sridharan.

Salem.

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CA. Anuj Gupta (Practices in NRI Int.Tax FEMA TP FDI/FIPB & FCRA) (7024 Points)
Replied 24 May 2011

Originally posted by : sssvkSridharan R.
	Dear Colleages, As per Rule 3 of the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2001, a person can not draw foreign exchange for any of the transaction specified in the Schedule I, one of which is “Payment of commission on exports made towards equity investment in joint ventures/wholly owned subsidiaries abroad of Indian companies.” Can any one explain the above transaction with example, please….. Regards, Sridharan. Salem.

Thats pretty simple. Indian companies are allowed to made equity investments in foreign subsidiary /JV by sale of goods and no commission can be paid on the same.

For ex. A ltd. an Indian Company wishes to take equity in B Ltd.(UK). Now instead of sending money as equity A Ltd. (manufacturer of machines)sends the machines and books the following entry:-

Share Capital of B Ltd. Dr. .................

To Sales Cr. ..................

(Being exports sales vide invoice no.XXXX made in lieu of equity participation in B Ltd.)

FEMA doesn't allow any commission top be paid against such export sales.

Hope the matter is clear.

Anuj

0-981016211

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