What changed
Previously, AD banks could allow remittances of up to 2% for initial and 1% for recurring expenses of average annual sales/income or turnover. The circular raised these to 10% and 5% respectively, effective April 21, 2006, with all other terms unchanged.
What it means for you
Indian companies expanding overseas could remit more funds for branch setup and operational costs without additional RBI approvals. For banks, this meant higher remittance volumes and a need to update internal limits and customer advisories.
What you must do
- Update internal remittance processing systems to allow up to 10% for initial and 5% for recurring expenses based on the last two years' average turnover (per 2006 circular).
- Communicate the revised limits to corporate customers with overseas branch plans.
- Ensure compliance with existing terms and conditions from the original FEMA notification.
- Monitor remittances to prevent exceeding aggregate caps.
Who it affects
Authorised Dealer (AD) banks handling foreign exchange remittances, Indian companies establishing or maintaining branch offices abroad, Corporate treasuries and finance teams managing overseas expansion
What is the basis for calculating the 10% and 5% limits?
The limits are calculated on the average annual sales, income, or turnover of the Indian entity during the last two accounting years, as per the existing terms.
Do we need separate RBI approval for remittances above the old limits?
No, AD banks could directly allow remittances up to the new limits without prior RBI approval, provided all other conditions are met.
Are there any changes to documentation or reporting requirements?
The circular did not introduce new documentation or reporting requirements; existing terms and conditions from the original FEMA notification continued to apply.