In the age of globalization, cross-border business transactions are common in daily business activities. However, this increasing number of such cross-border transactions has given rise to illegal transactions and money-laundering activities that are further applied towards funding terrorist activities, drugs, and human trafficking. Therefore, for the regulation of cross-border transactions and facilitating cross-border transactions, external payments, and maintenance of the foreign exchange market in India, the Government of India introduced the Foreign Exchange Management Act, 1999.

The FEMA authorizes the central government to enforce restrictions or oversee and monitoring of certain cross–border payments such as payments made/received to a person by any person outside Nagpur, Maharashtra, forex, investments in foreign securities, etc. are some transactions which could be completed only after obtaining approval by the Reserve Bank of India under permitted route.

Therefore, the FEMA Act 1999 applies to-

  • Foreign exchange.
  • Foreign security.
  • Export of any goods or services or both from Nagpur, Maharashtra to a foreign country;
  • Import of any goods or services or both from Nagpur, Maharashtra to a foreign country;
  • Dealing in ‘Securities’ as defined under the Public Debt Act 1994.
  • Purchase, sale, and exchange of goods or services, etc.
  • Any Banking, financial, insurance, or related services;
  • Any overseas company held by an NRI (Non-Resident Indian) and holds the ownership either 60% or more.
  • Any citizen of Nagpur, Maharashtra, either residing in Nagpur, Maharashtra or outside in Nagpur, Maharashtra;

Further, all the foreign transactions have been categorized into two types as provided below-

  1. Capital Account Transactions- As defined under section 2(e) of the FEMA Act 1999, capital account transactions are such transactions that tend to alter either the assets or liabilities or both, including contingent liabilities of either the person resident in Nagpur, Maharashtra or outside Nagpur, Maharashtra and includes such other transactions as provided under section 6(3) of the Act.
  2. Current account transaction- As defined under section 2(gg) means a transaction other than a capital account transaction and includes transactions such as-
  • Due payments in relation to either foreign trade, business services, or the short term credit facilities in the ordinary course of business;
  • Amounts due as interest on loans and as net income from investments,
  • Payment Transfers for various expenses such as living expenses of parents, spouses, and children residing abroad, and
  • Payments expended in relation to the foreign travel, education, and medical care of parents, spouses, and children.

Generally, the current account transactions are the transactions that are allowed unless explicitly prohibited under FEMA provisions. On the other hand, capital account transactions are such transactions that are not permitted unless explicitly permitted under the FEMA provisions.

FEMA RegistrationProcess of FEMA Registration in Nagpur, Maharashtra

Maharashtra is the 3rd biggest state in terms of geographical area, i.e. 9.4% of the total area of the country. The state lies on the West coast and is well connected with in the country by a dense network of roadways stretching around 3,09,000 km and railway linkage of around 6,210 km within the state. It marks a strong presence on the air map with 4 international and 7 domestic airports. The shoreline of the state is nearly 720 km, with 55 ports which facilitate transportation of 22% of the total cargo transport of the country. Jawahar Lal Nehru Port Trust (JNPT) is located here and is linked with 46 Inland Container Depots (ICD), 34 Container Freight Stations (CFS). The state supports it’s industries with the installed power generating capacity of 43,000 MW.

The state has the highest GDP, 2nd highest FDI inflow during 2020-21 at 28% in the country and Ranks No. 1 in Export Preparedness Index in 2020. FDI for the period Oct -2019 – Sept 2020 aggregated over $10.8 Bn and for the period Oct -2019 to March 2021 the state’s contribution for the FDI was nearly $23.43 Bn. Mumbai, the state capital is popularly known as the Financial Capital of India and is home to most headquarters of all major corporate and financial institutions.

Information Technology is one of the key sectors of the state, accounting to more than 20% of the country’s software exports. Pune, Aurangabad, Nashik and Kohlapur are the major export cities from the region. The government has developed 37 IT parks and also approved 472 others and the State’s Industrial Policy offers policies regarding various infrastructural investments like exemption on filing patents and Knowledge Parks etc.

Maharashtra holds 30.5% share in industrial output of ESIDM sector. The state also has 3 Electronic Manufacturing Clusters (EMC) in Pune, Aurangabad and Navi Mumbai, with facilities for testing and R&D. Well established ESDM hubs are located in Khed and Talegaon in Pune. They enjoy locational benefits of being directly connected to JNPT and Mumbai port, the largest ports of the country.

With a robust presence, Maharashtra shares 35% of the total output of Automobiles by value with the assistance of committed manufacturers and a network of component suppliers and vendors. Major centres are located in Pune, Aurangabad, Nashik and Nagpur.

The state is the major producer of Arhar and Jowar, contributing 29.11% and 46.09% respectively to the aggregate yield of the country. Ranks #2 in the production of bananas, cashew, pulses, cotton and sugarcane. This region tops the chart in the production of Grapes and provides stimulation to the grape processing and wine industry with the help of dedicated wine policy and wine parks. 8 Food Parks and 3 Floriculture Parks with superior facilities are established here. Thus, Food Processing industry in the state is worth $158 Mn by way of 173 projects initiated during the years 1992-93.

An ace producer of cotton, bamboo and silk fibers, textile sector generates 2nd highest employment opportunities in the zone after agriculture. 14 private and 10 government textile parks are set up with plug and play facility. The government has launched Textile Policy to ensure various incentives to the sector by way of tax exemption, interest subsidy and up gradation subsidy, with a mission to generate 1 mn new job prospects by year 2023. Bombay High is the largest producer of offshore oil in India. Bollywood, world’s largest film industry in term of viewership is based out of Mumbai.

With a fairly good sex ratio in the state, 929 females per 1000 males. 66% of the total population of the region falls between the age group of 15-59 years and is the 2th most populous state of the country, with 112.4 million citizens residing i.e. nearly 9% of the country’s population, which is equivalent to the population of Mexico on their 1/6th of their land area. This state has 1 Central University, 23 State Universities, 21 Deemed Universities, 14 Private Universities, 885 Engineering Colleges, 227 Business Management Institutes, 438 Pharmacy Colleges and 474 Industrial Training Institutes.

The aggregate value of investment opportunities in Maharashtra is nearly $815.58 bn, comprising of a total of 1195 projects out of which 45 are private and 1150 are Government owned projects, with 242 promoters involved, spread across 39 districts of the state, which makes Maharashtra a perfect breeding ground for developmental projects in the commercial segment. Prestigious Government schemes are also running here like Pradhan Mantri Awaas Yojana Gramin which values about $59.38 bn, Pradhan Mantri gram Sadak Yojana Project costs a whooping amount of $50.24 bn, Wind Power Project worth $56.47 bn and Solar Power Project with aggregate value of $63.57 bn.

For the purposes of FEMA registration, apart from an individual following legal entity shall be required to get registration and follow FEMA compliances, as required from time to time-

  • A company incorporated within the provisions of the Companies Act, 2013
  • A Limited Liability Partnership (LLP) registered as per the provisions of the LLP Act 2008;
  • A legal entity recognized as a start-up that fulfills the criteria prescribed for recognition of start-up under the DPIIT Scheme under the Ministry of Commerce and Industry, Government of Nagpur, Maharashtra.

Therefore, the RBI along with the Govt. of Nagpur, Maharashtra launched the FIRMS portal intending to simplify the foreign investment reporting under one master form under Single Master Form (SMF) through which the legal entity can report FEMA compliances and can complete foreign investment reporting, without having to acquire a digital signature certificate of the authorized signatory of the business entity. Thus, The Foreign Investment Reporting and Management System (FIRMS) is a one-stop-shop for various reporting compliances under the provisions of FEMA and is available on a 24*7 basis.

Documents Required for FEMA registrationDocuments Required for FEMA registration in Nagpur, Maharashtra

  • Details of the Business Units;
  • Proof of registered address of the main office as well as correspondence address;
  • Bank Details of the business unit including the IFSC code;
  • Unique CIN/LLPIN of the Business entity;
  • PAN number of the business entity;
  • Authority letter-Attachment as specified under FIRMS system.
  • Details related to the foreign investment in the entity must be prepared.

Process of FEMA Registration in Nagpur, Maharashtra

  • Go to the FIRMS online portal by accessing the website (https://firms.rbi.org.in)
  • On the online portal, select the Registration form for “New Business user” registration (Business user is the applicant authorized by the business entity for reporting transaction through FIRMS portal and shall be applicable concerning one entity only)
  • Fill up the form with basic details such as business user such as name, last name, business user address details, bank details, etc.
  • After filling all the details, submit the form and in case of any discrepancy, rectify errors and submit the application carefully. A message stating ‘Record Saved Successfully’ will be displayed on the box.
  • Next the Business user will be verified by the Authorised Dealer (AD) (a bank which has been specifically authorized for dealing in foreign exchange or foreign securities under FEMA act 1999 by the RBI)bank through its e-KYC procedure and the approval/rejection will be informed to the Business user through the provided e-mail address.
  • On getting approval of FEMA registration by the RBI, the applicant shall be required to visit again the FEMA portal and change the password. After logging in with the new password, the applicant will be able to go to his/her user workspace and fill out forms accordingly.

Annual Compliances under FEMA

  • Annual Return under FEMA

Every Nagpur, Maharashtra company that has made a Foreign Direct Investment (FDI) in the previous year and the current year, must submit an annual return providing details of the foreign liabilities and assets in the annual return. Such annual return must submit the annual return except in the year in which no investment is made by the company.

  • Annual Performance Report

Overseas Direct Investment is investments made either through contribution to the capital or subscription to the memorandum of a foreign company through direct purchase of existing shares of a foreign entity in the open market or private placement or the stock exchange but does not include Portfolio.

Every resident Nagpur, Maharashtra person who has made an Overseas Direct Investment (ODI) in the previous year and the current year, has to submit an annual performance report in Form ODI Part II to the concerned AD (Authorised Dealer) bank either on or before 31st December every year, prescribing details of any investments made in any Joint Venture or Wholly Owned Subsidiaries outside Nagpur, Maharashtra.

  • External Commercial Borrowings (ECB)

ECBs are the commercial loans raised by the eligible person’s residents of a country that are from non-resident legal entities (foreign companies) under the prescribed rules and regulations. Therefore, every resident person in Nagpur, Maharashtra must report all ECB transactions to the RBI through his authorized dealer bank in the form ‘ECB 2 Return’. This form is a simplified return which allows the person to disclose details like-

    • Total outstanding principal ECB amount and the currency;
    • Notional value and percentage of outstanding ECB; and
    • Annualized percentage cost of the financial hedge(s) for ECB
  • Foreign Direct Investment (FDI ) Reporting for Various Purposes

The latest FEMA (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 notified by the RBI on October 17, 2019, prescribes for the various forms required to be filled for various purposes within provided timelines for the FDI reporting on the FIRMS portal-

Form Name Purpose Time-line
i. FCGPR (Foreign Currency-Gross Provisional Return) Form For an Nagpur, Maharashtra company that intends to issue equity instruments to a person residing outside Nagpur, Maharashtra; To be filed within a period of 30 days from the date of issue of the equity instruments by the Nagpur, Maharashtra Company;
ii. FCTRS (Form Foreign Currency-Transfer of Shares) Form Where any resident transferor/transferee or the person resident outside Nagpur, Maharashtra holds equity instruments on a non-repatriable basis; To be filed either within

· 60 days from the transfer of equity instruments; or

· receipt/remittance of funds, whichever is former;
iii. LLP(I) Form Where an LLP intends to receive consideration for the capital contribution made for an entity outside Nagpur, Maharashtra; To be filed within 30 days from the date of receipt of consideration.
iv. LLP(II) Form Where any resident transferor/transferee intends to receive capital contribution either from a resident or non-resident outside Nagpur, Maharashtra or vice-versa; To be filed within 60 days of the receipt of the amount of consideration;
v. CN Form Where any Nagpur, Maharashtra start-up wishes to issue convertible notes to a person resident outside Nagpur, Maharashtra; To be filed within 30 days from the date of issuance of the convertible notes;
vi. DRR Form The domestic custodian issuing/transferring the depository receipts, in accordance with the Depository Receipt Scheme, 2014 should report in DRR Form Within a period of 30 days of issuance/transfer of depository receipts.
vii. ESOP Form Where an Nagpur, Maharashtra company wishes to issue stock options to a person resident outside Nagpur, Maharashtra who are either-

· employees/directors of the company; or

· employees/directors of its holding company/joint venture; or

· wholly-owned overseas subsidiary/subsidiaries

 To be filed within 30 days from the date of issuance of employees’ stock option.
viii. DI Form Where an Nagpur, Maharashtra business entity or investment vehicle has invested in another Nagpur, Maharashtra business entity, such investment will be called foreign indirect investment; To be filed within 30 days of the allotment of equity instruments.
ix. INVI Form An investment vehicle that has issued securities to a person resident outside Nagpur, Maharashtra; To be filed within 30 days from the date of issuance of units.

Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 also provide that any delay in reporting foreign investments would attract a penalty known as late submission fees (LSF). Only after receipt of LSF, the registration of the legal entity will be approved by the RBI.

Benefits of FEMA Registration in Nagpur, Maharashtra

  • Compliance with Legal Procedures-Under s. 3 of the FEMA 1999, it is compulsory for each person to obtain registration by the person who is-
    • To enter into any arrangement related to foreign exchange or foreign security to an unauthorized person;
    • To make any payment to or for making payment of loans to a person resident outside Nagpur, Maharashtra in any manner;
    • To receive any payment through orders by a person who is not authorized on behalf of a person resident outside Nagpur, Maharashtra in any manner;
    • To engage in any monetary transactions with respect to any consideration or association for the creation or transfer of a “right to acquire” an asset outside Nagpur, Maharashtra by any other person.

Therefore, failing to comply with FEMA requirements shall be an “offense” under FEMA provisions and shall invite penalties and prosecutions.

  • Legality of Cross-border Payments-Obtaining registration under the FEMA Act 1999, will naturally give the confidence to the person to enter foreign transactions confidently and ensure compliances with the applicable provisions to eliminate the fears of committing any offense under the Act or payment of a hefty sum of penalty;
  • Avoidance of Penalty under FEMA– Under the FEMA provisions, if any person contravenes the applicable provisions of FEMA Act or any other rules, regulations, directions, or notifications issued by the RBI or Govt. of Nagpur, Maharashtra, such person shall be liable to be prosecuted and penalized for an amount which could be up to thrice the amount involved, where the amount is assessable. Where the amount involved in the contravention could not be assessed, it could lead to a maximum of Rs. Two lakh maximum for each offense. Where such contravention is of continuing nature, the person shall be made liable to an additional penalty of Rs. 5000/- per day during the period when the contravention continues to take place.

Conclusion

Therefore, FEMA registration in Nagpur, Maharashtra is an important registration for an entity that wants to make cross-border transactions on a time-to-time basis and further to save themselves from any further consequences under the Act.