What changed
Item 8 of Schedule II to the Foreign Exchange Management (Current Account Transactions) Rules, 2000, which required prior approval from the Ministry of Commerce and Industry for royalty payments exceeding 5% on local sales and 8% on exports, and lump-sum payments over USD 2 million, has been omitted. Consequently, AD Category-I banks are now permitted to allow drawal of foreign exchange for such payments without seeking government approval.
What it means for you
This liberalisation simplifies the process for Indian companies entering into technical collaboration agreements, reducing bureaucratic hurdles and approval timelines. Banks can now process these remittances directly, enhancing operational efficiency and supporting ease of doing business. However, banks must ensure compliance with other applicable laws and FEMA provisions.
What you must do
- Update internal procedures to process royalty and lump-sum remittances under technical collaboration agreements without requiring Ministry of Commerce approval.
- Inform customers and constituents about the removal of prior approval requirement for these remittances.
- Ensure all remittances are processed in compliance with FEMA and other applicable laws, maintaining proper documentation.
- Monitor transactions to ensure they fall within the liberalised framework and report any anomalies as per regulatory guidelines.
Who it affects
AD Category-I banks, Indian companies entering into technical collaboration agreements, Customers seeking to remit royalty or lump-sum payments under such agreements
What specific approvals have been removed under this circular?
The prior approval of the Ministry of Commerce and Industry is no longer required for remittances of royalty (previously capped at 5% on local sales and 8% on exports) and lump-sum payments (previously capped at USD 2 million) under technical collaboration agreements.
Do banks need to verify anything before processing these remittances?
Yes, banks must ensure compliance with FEMA and other applicable laws. While the specific approval from the Ministry of Commerce is removed, banks should still verify the underlying agreement and maintain proper documentation.
When did this change take effect?
The amendment was notified by the Government of India vide Notification No. G.S.R.382(E) dated May 5, 2010, and the circular was issued on May 13, 2010.