India Native Wake: Cross-Border Payments and Exchange Controls in India

[20 Frequently Asked Questions on Cross-Border Disputes]

In India, foreign exchange management regulations are governed by the Foreign Exchange Management Act (FEMA) and the corresponding policies and guidelines laid down by the Reserve Bank of India (RBI). The Enforcement Directorate (ED), a full-fledged law enforcement agency, is responsible for investigating money laundering offences and violations of foreign exchange regulations.

In order to facilitate the transfer of funds, it is important to ensure that all procedures are followed and that all necessary documents and applications, such as commercial invoices, copies of contracts and bank certificates, are prepared and submitted. Depending on the circumstances, prior approval from RBI may be required, especially for large sums of money or for specific purposes.

Below is a summary of the key strategies:

1. Use of permissible banking and payment channels, e.g. transfer of funds through RBI approved authorised transactional banks.

2. Selection of appropriate payment methods, taking into account phased payments and clear terms in the contract to avoid exceeding foreign exchange limits.

3. Consider other fund transfer options, such as trade credits or bank guarantees, and use forward foreign exchange contracts to lock in exchange rates. This can mitigate the risk of exchange rate fluctuations and provide a more stable funds transfer solution within the allowed foreign exchange limits.

4. Ensure compliant reporting and tax filing by submitting foreign exchange transaction reports as required by RBI, properly documenting and reporting all fund transfer activities while complying with tax regulations and filing returns in a timely manner.