JAIIB PPB Paper-2 Module-A Unit 8: Foreign Exchange Remittance Facilities for Individuals

JAIIB Paper 2 (PPB) Module A Unit 8: Foreign Exchange Remittance Facilities for Individuals (New Syllabus) 

The Institute of Indian Banking and Finance (IIBF) has recently revealed the revised syllabus and examination pattern for the JAIIB Exam 2023. The JAIIB 2023 will consist of four papers, with Paper 2 (Principles & Practices of Banking ) covering the crucial topic of “Unit 8: Foreign Exchange Remittance Facilities for Individuals.” It is essential for candidates to thoroughly understand this unit to perform well in the examination.

To assist candidates in comprehending the topic, we will provide all the necessary details related to Unit 8: Foreign Exchange Remittance Facilities for Individuals of JAIIB Paper 2 (PPB) Module A: General Banking OperationsWe highly recommend that candidates refer to this article and make use of our Online Mock Test Series to enhance their knowledge of Foreign Exchange Remittance Facilities for Individuals.

Understanding each unit in the syllabus, especially the Marketing unit, is essential for JAIIB Certification Examination 2023 candidates. This unit plays a vital role in the banking industry, and thus, candidates must prepare well to excel in the exam and establish a successful career in the banking sector.

Evolution Of FEMA

  • For a long time after independence, foreign exchange in India was treated as a controlled commodity because of its limited availability.
  • Exchange control was introduced under the Defence of India Rules on September 3, 1939. The statutory power for exchange control was provided by the Foreign Exchange Regulation Act (FERA) of 1947, which was replaced by a more comprehensive Foreign Exchange Regulation Act, 1973.
  • Significant developments in the external sector resulted in a changed environment. Keeping this in view the Foreign Exchange Management Act (FEMA) was enacted to replace FERA, effective from June 1, 2000.
  • It brought a new management regime of Foreign Exchange consistent with the emerging framework of the World Trade Organization (WTO). This act made the offences related to foreign exchange as civil offences as against criminal offences under the FERA.
  • It extends to the whole of India, except the Gujarat International Foreign Tec-City. It relaxed the controls on foreign exchange in India, made external trade transactions easier. The switch to FEMA shows the change on the part of the government approach to foreign capital.

Main Features of FEMA 

FEMA aimed at consolidating and amending the laws relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange markets in India.

  • FEMA empowers the Central Government to impose restrictions.
  • The transactions in foreign exchange should be made only through an Authorized Person.
  • Payments to or receipts from any person outside India, as also other deals in foreign exchange and foreign security, are restricted.
  • Foreign exchange transactions, foreign security dealings or owning or holding immovable property abroad by people living in India are restricted.
  • Transactions involving foreign exchange or foreign security and payments from outside the country to India cannot be undertaken, without general or specific permission of RBI.
  • Foreign exchange transactions under the current account can be restricted by the Central government, based on public interest.
  • RBI is empowered by FEMA to subject the capital account transactions to a number of restrictions.
  • People living in India are permitted to carry out transactions in foreign exchange, foreign security or to own or hold immovable property abroad if the currency, security or property was owned or  acquired when he/she was living outside India, or when it was inherited to him/her by someone  living outside India.

Important Terms

  • Authorised Dealer (AD): a person authorised as an authorised dealer under sub-section (1) of section 10 of FEMA.
  • Authorised Dealer Category I: entities which are authorised by the RBI to carry out all permissible current and capital account transactions as per directions issued from time-to-time.
  • Authorised Dealer Category II: entities which are authorised by the RBI to carry out specified non-trade related current account transactions.
  • Authorised Dealer Category III: entities which are authorised by the Reserve Bank to carry out specific foreign exchange transactions incidental to their business/ activities.
  • Authorised Person (AP): an authorised dealer, money changer, off-shore banking unit or any other person authorised under sub-section (1) of section 10 to deal in foreign exchange or foreign
  • Capital account transaction: a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India.
  • Current account transaction: a transaction other than a capital account transaction and includes: (i) payments due in connection with foreign trade, other current business, services, and short-term  banking and credit facilities in the ordinary course of business,  (ii) payments due as interest on loans and as net income from investments,  (iii) remittances for living expenses of parents, spouse and children residing abroad, and  (iv) expenses in connection with foreign travel, education and medical care of parents, spouse and
  • Foreign Portfolio Investment: is any investment made by a person resident outside India in capital instruments where such investment is (a) less than 10 percent of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company or (b) less than 10 percent of the paid  up value of each series of capital instruments of a listed Indian company.
  • Not permanently resident: is a person resident in India for employment of a specified duration or for a specific job, the duration of which is not more than three years.
  • Non-Resident Indian (NRI): a person resident outside India who is a citizen of India.
  • Person of Indian Origin (PIO): a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan and has Indian ancestory.
  • Person resident in India: (i) a person residing in India for more than 182 days during the course  of the preceding financial year but does not include:  (A) a person who has gone out of India or who stays outside India, in either case–  (a) for or on taking up employment outside India, or  (b) for carrying on a business or vocation outside India, or  (c) for any other purpose, as would indicate his intention to stay  outside India for an uncertain period.

Bringing In of Foreign Exchange

Foreign exchange in any form can be brought into India freely without any limit, as per certain procedures:

Currency Declaration Form: When foreign exchange is brought into India by a person, a declaration to the Customs Authorities in Currency Declaration Form (CDF) is to be made, except in following cases:

  • If currency notes, bank notes and/or traveler’s cheques do not exceed USD 10,000 or its equivalent, and/ or
  • If foreign currency notes do not exceed USD 5,000 or its equivalent.

Purchase Of Foreign Currency From Public

Payment in cash in Indian Rupees for foreign currency notes and/ or travellers’ cheques purchased is permitted, with following ceilings per transaction:  −

  • From resident persons: USD 1,000 or equivalent
  • From Foreign visitors/ Non-Resident Indians: USD 3,000 or equivalent.

Taking Out of Foreign Currency

Taking out foreign exchange in any form, other than foreign exchange obtained from an authorised dealer or a money changer is prohibited.

Sales Against Reconversion of Indian Currency

AP may convert into foreign currency, unspent Indian currency held by non-residents at the time of their departure from India, provided a valid Encashment Certificate is produced.

In following cases unspent rupees can be converted to foreign currency without an enchashment certificate:

  • Amount up to Rs.10,000/– (AP is satisfied about the bona fide reasons for not having the encashment certificate, and – The departure is within the following seven days).
  • Foreign tourists (not NRIs) may be permitted to reconvert rupees withdrawn from ATM upto Rs.50,000/- against following documents: – Valid Passport and Visa,  – Air Ticket confirmed for departure within seven days, and  – Original ATM withdrawal slip

Inward Remittances

  • Inward remittance refers to transfer of money made to a country from any foreign country. The transaction is initiated in a foreign country by the person making the remittance to a person in the recipient country.
  • There are no restrictions for a resident individual for receiving inward remittances through AD banks in India.
  • Foreign exchange due or accrued as remuneration for services rendered, whether in or outside India, or in settlement of any lawful obligation, or an income on assets held outside India, or as inheritance, settlement or gift, is to be sold (surrendered) to an authorised person within 180 days from the date of its receipt.

Approved Remittance Methods To India

  • Bank Wire Transfer
  • Bank Money Order
  • Foreign Currency Cheques
  • Foreign Currency Drafts
  • Remittance Cards
  • Direct Deposit/ACH Transfer

Outward Remittances

  • Release of foreign exchange to persons resident in India for various current account transactions is governed by Foreign Exchange Management (Current Account Transactions) Rules, 2000. These rules have categorized current account transactions in the following three categories:
  • Transactions expressly prohibited – Schedule I -Transactions permitted with prior approval from the concerned Ministry/ Department of the Government of India – Schedule II − Transactions that can be permitted by Authorised Dealers upto the threshold ceilings specified – Schedule III.
  • The transactions covered under Schedule II or Schedule III are exempted from the requirement of prior approval of the Government of India or the Reserve Bank respectively:

i)Resident Foreign Currency Accounts 

ii)Exchange Earners’ Foreign Currency (EEFC) Accounts

Prohibition on Drawal of Foreign Exchange

Drawal of foreign exchange by any person for the following purpose is prohibited:

  • Transaction specified in the Schedule I
  • Travel to Nepal and/or Bhutan
  • Transaction with a person resident in Nepal or Bhutan. This may be permitted by RBI by special or general order, with such conditions as considered necessary.

International Credit Card

  • The restrictions contained in FEMA are not applicable to International Credit Cards (ICCs) used by residents for expenses, while on a visit outside India.
  • ICCs cannot be used in any manner for prohibited items, like lottery tickets, banned or proscribed magazines, participation in sweepstakes, payment for call-back services.
  • Use of ICC for payment in foreign exchange in Nepal and Bhutan is not permitted.
  • There is no aggregate monetary ceiling separately prescribed for use of ICCs through internet.

Liberalised Remittance Scheme

  • For resident individuals RBI has eased the restrictions for outward remittances under the Liberalized Remittance Scheme (LRS) introduced in 2004.
  • It is available to resident individuals, including minors.
  • It is not available to corporates, partnership firms, HUF, Trusts, etc.
  • Maximum amount permitted in a financial year (April to March) is USD 250,000 per head.
  • There is no restriction on the number of transactions.
  • Can be used for any permitted current account or capital account transaction or any combination.
  • Remittance for margins or margin calls to overseas exchanges/ counterparty are not allowed.
  • Cannot be used to give a gift to another resident individual by remitting funds to the latter’s foreign currency account overseas.
  • Travellers proceeding to countries other than Iraq, Libya, Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States – not exceeding USD 3000 per visit or its equivalent.
  • Travellers proceeding to Iraq or Libya – not exceeding USD 5000 per visit or its equivalent.
  • Travellers proceeding to Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States – full exchange may be released.
  • A resident individual may remit up to USD 250,000 in one FY as gift to a person residing outside India or as donation to an organization outside India.
  • A person going abroad for employment, business trip, medical expenses, study abroad, maintenance of relatives, can draw foreign exchange up to USD 250,000 per FY.
  • A resident individual may surrender received/ realised/ unspent/ unused foreign exchange to an AP within a period of 180 days.
  • A returning traveller is permitted to retain, foreign currency, travellers’ cheques and currency notes up to USD 2000 and foreign coins without any ceiling beyond 180 days, and utilize it for his subsequent visit abroad.

Indo Nepal Remittance Scheme

  • Indo-Nepal Remittance Facility Scheme (Scheme) was launched by the RBI (in consultation with Nepal Rastra Bank) in May 2008 as an option for cross-border remittances from India to Nepal.
  • The system was launched with only oneway remittances from India to Nepal.
  • A ceiling of INR Rs.2,00,000 is fixed per remittance.
  • Banks may accept cash from walk-in customers or non-customers. The ceiling of Rs. 50,000 per remittance with a maximum of 12 remittances in a year applies for such remittances.
  • The remittances from India are in Indian Rupees, and the payment to the beneficiaries, is in Nepalese Rupees.
  • The Nepal remittances are processed in different NEFT batches in NCC, Mumbai and channelized to Nepal using the SBI payment gateway specially created for Nepal remittances.
  • Remittances are paid to the beneficiaries in Nepal through the branches of Nepal State Bank Ltd.  and their approved Agents.
  • Cash remittances are accepted from non-customers only. In such cases, the remitter has to produce any identification document.
  • The address and telephone/ mobile number of the sender as also the beneficiary in Nepal are also captured while sending a remittance.

JAIIB PPB Module Unit 8 Foreign Exchange Remittance Facilities For Individuals (Ambitious Baba) PDF

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