Demystifying the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023: A Comprehensive Guide

Introduction

The Reserve Bank of India (RBI) has introduced new guidelines under the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023. These regulations, which took effect on December 21, 2023, replace the earlier regulations from 2016. This comprehensive guide breaks down the new rules, highlighting their implications for residents and businesses in India engaging in foreign exchange transactions.

These regulations are referred as Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023. They became effective immediately upon their publication in the Official Gazette i.e. 21-Dec-2023. Further, these regulations suppress the eralier regulations: Notification No. FEMA 14(R)/2016-RB dated May 02, 2016,

Scope of the Regulations

The regulations stipulate that no resident of India shall make or receive payments from a non-resident except in the manner prescribed by these regulations or as otherwise provided by the Act, its rules, or specific directions issued under the Act.

Detailed Provisions on Receipts and PaymentsFor Trade Transactions: For trade-related transactions, the manner of receipts and payments is specified based on the countries involved:

Nepal and Bhutan

- Payments for exports and imports are to be made in Indian Rupees (INR).

- For exports to Nepal, if the Nepal Rashtra Bank permits, payments can be made in foreign currency.

Member Countries of the Asian Clearing Union (ACU)

- Payments should be made through the ACU mechanism, except for Nepal and Bhutan.

- If goods are shipped from a member country of the ACU to India, but the supplier is from a non-ACU member country, payments can be made in INR or foreign currency.

Other Countries

- Payments can be made in INR or any foreign currency, providing flexibility for trade with countries outside the ACU.

For Transactions Other Than Trade: For non-trade transactions, the regulations specify the following:

Nepal and Bhutan

- Payments are generally to be made in INR.

- For overseas investments in Bhutan, payments can be made in foreign currency.

Other Countries

- Payments can be made in INR or any foreign currency, ensuring flexibility for various types of non-trade transactions.

Special Provisions for Visitors: For non-trade current account transactions involving visitors to India, the regulations mandate:

- Payments and receipts must be made in INR.

- Transactions can also be managed through debits or credits to a bank account maintained as per the applicable rules.

Implications for Businesses and Individuals

The updated regulations provide clear guidelines for businesses involved in international trade, particularly with neighboring countries like Nepal and Bhutan. This clarity is expected to streamline financial transactions related to export and import, ensuring compliance with RBI norms and reducing the risk of non-compliance penalties.

Link to New Regulations: Click here

Link to Earlier Regulations (supressed): Click here