IIBF Forex for Individuals cheat sheet

FEMA 1999 consolidates the regulation of foreign exchange, foreign security and immovable property dealings; it replaced the earlier FERA 1973 regime and shifted the approach from prohibition to facilitation with a current-account focus.

Current account transactions are generally permitted unless specifically restricted under the Current Account Transaction Rules; capital account transactions are generally restricted unless specifically permitted under the Capital Account Transaction Rules.

Resident individuals fall under FEMA for all foreign exchange dealings; a person resident in India is defined by stay tests (broadly more than 182 days in the preceding financial year for specified purposes) plus intention-based tests for citizens going abroad.

Non-resident Indian (NRI) status under FEMA is distinct from income-tax residential status; the two tests can produce different results for the same individual in the same year.

The rupee is not convertible for capital account purposes; convertibility is limited to current account transactions, subject to the Liberalised Remittance Scheme and other sectoral limits.

Foreign exchange rates in the Indian market are market-determined; authorised dealers quote card rates built from the interbank rate plus a margin, and the RBI does not fix commercial rates.

FEMA contraventions attract civil penalties under Section 13, calculated with reference to the sum involved, and adjudication is by the Directorate of Enforcement; FEMA is not a criminal statute in the way FERA was.

Forward and other derivative contracts by residents require an underlying exposure and must be booked with an authorised dealer; speculation without an exposure is not permitted for individuals.

The Liberalised Remittance Scheme (LRS) is the principal route for resident individuals to remit foreign exchange for permitted current and capital account purposes, subject to a prescribed annual ceiling per financial year.

LRS permits resident individuals to remit up to the prescribed annual ceiling per financial year for permitted purposes; the ceiling is a combined cap across all purposes, not a per-transaction limit.

Permitted LRS uses include education, medical treatment, maintenance of close relatives, travel, gifts and donations, emigration, and investment in overseas securities and property, subject to conditions.

Remittances for certain purposes are prohibited or restricted even within LRS - for example, trading in foreign exchange or margin trading on overseas exchanges, and remittances to countries identified as non-cooperative or under UN sanctions.

Individuals may hold foreign currency accounts and repatriate funds; resident foreign currency (RFC) accounts allow NRIs returning to India to retain foreign currency balances with an authorised dealer.

Exchange Earners' Foreign Currency (EEFC) accounts let eligible resident individuals retain a portion of specified foreign currency earnings in foreign currency with an authorised dealer.

International debit, credit and prepaid cards can be used for permitted current account transactions abroad; card spends count against the individual's LRS ceiling, with a higher card-specific limit for specified purposes.

Resident individuals can purchase foreign exchange cash or travellers cheques for travel up to prescribed limits; the release of foreign exchange is subject to documentation depending on the amount.

Non-resident individuals may open NRE (rupee, repatriable) and NRO (rupee, non-repatriable) accounts; FCNR(B) accounts are foreign-currency term deposits for NRIs with repatriability.

Forward contracts, options and swaps for individuals are permitted only against a genuine underlying exposure, with the contract tenor normally matching the exposure; cancellation and rollover rules apply.

KYC for retail forex requires identity and address proof under the RBI Master Direction on KYC, with a PAN mandatory for most transactions and for accounts; Aadhaar-based e-KYC is permitted subject to conditions.

Form A2 is the standard application-cum-declaration for foreign exchange remittances by individuals, declaring the purpose and confirming the remittance is within LRS where applicable.

A declaration of the purpose of remittance and confirmation that the funds are not for prohibited purposes is mandatory; the authorised dealer relies on the customer declaration but must apply risk-based scrutiny.

For education remittances, supporting documents typically include the offer or admission letter and the fee schedule; for medical treatment, an estimate from the hospital may be required above specified thresholds.

For remittances above prescribed thresholds, a certificate from a chartered accountant regarding the source of funds may be required; the threshold is prescribed in the LRS framework.

The Permanent Account Number must be quoted for all LRS remittances; a person who does not hold a PAN may be required to furnish Form 60 in specified cases.

Authorised dealers must screen transactions against sanctions lists and report suspicious transactions to FIU-IND under the Prevention of Money Laundering Act framework.

Purpose codes and the purpose of remittance must be accurately stated; misdeclaration can attract FEMA penalties and action under PMLA.

Records of forex transactions must be retained for the period prescribed under PMLA and the KYC Master Direction (currently five years after the transaction or cessation of the business relationship).

The card rate is the authorised dealer's quoted rate to the customer, derived from the interbank rate plus a margin; the spread is the difference between buying and selling rates.

Retail remittance pricing components typically include the exchange margin, a service charge or commission, correspondent bank charges, and GST on the service fee.

Cross-currency rates are derived by triangulating through the rupee; the USD/INR rate is the principal reference for Indian retail pricing.

Forward premia or discounts reflect the interest rate differential; a forward rate equals the spot rate adjusted for the premium or discount over the tenor.

Settlement of outward remittances requires the beneficiary's name, account number, bank and SWIFT/BIC code, and the transaction is settled through the correspondent banking chain.

Value dates follow the currency convention - T+2 for most major currency pairs - and value date mismatches can cause failed or returned payments with charges.

Cancellation of a booked forward contract before maturity can attract cancellation charges and may require the underlying exposure justification to be re-established.

Customer grievance redressal follows the bank's internal escalation, then the RBI's Integrated Ombudsman Scheme for complaints not resolved within the prescribed period.

Service charges on forex transactions must be disclosed to the customer; the RBI requires transparent display of exchange rates and charges at branches and on websites.