The Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023, were enforced upon their publication in the Official Gazette. These regulations are grounded in the Foreign Exchange Management Act, 1999 (42 of 1999), and seek to streamline and regulate transactions involving foreign exchange in India.
Manner of Receipt and Payment
A critical aspect of these regulations is the stipulated manner of receipt and payment in foreign exchange. Primarily, no resident in India can make or receive payments from a non-resident without adhering to the Act’s guidelines, unless the Reserve Bank of India (RBI) provides special permission.
Transaction Channels
Transactions between residents and non-residents must typically occur through an Authorised Bank or Authorised Person. The regulations specify different mechanisms for trade and non-trade transactions:
Trade Transactions: These involve payments for exports or imports. For countries like Nepal and Bhutan, transactions should be in Indian Rupees, with exceptions in specific cases. For member countries of the Asian Clearing Union (ACU) other than Nepal and Bhutan, the ACU mechanism or directions from the RBI apply. For countries outside the ACU, payments can be in Indian Rupees or any foreign currency.
Non-Trade Transactions: These include other types of cross-border financial exchanges. Transactions with Nepal and Bhutan should be in Indian Rupees, with provisions for foreign currency in certain cases. For other countries, transactions can be in Indian Rupees or any foreign currency.
Special Provisions for Current Account Transactions
For any current account transaction not involving trade, occurring between a resident and a non-resident visiting India, the payment must be in Indian Rupees. Furthermore, payments or receipts under these regulations can also be settled by debit or credit to a bank account, as per the rules under the Act.
Implications and Compliance
These regulations aim to bring greater clarity and structure to foreign exchange transactions in India. Businesses engaged in international trade or financial transactions need to align their processes with these new rules to ensure compliance. It’s crucial for entities to understand the nuances of these regulations to avoid legal complications and to facilitate smoother international transactions.
