RBI announces changes to the FEMA regulation on advance payment received on exports

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The Reserve Bank of India (“the RBI”) through an Extraordinary Gazette No. CG-DL-E-11092021-229553 dated September 08, 2021 notified certain amendments, using the powers conferred to them by Sub Section (1) and Sub Section (2) of Section 47 of the Foreign Exchange Management Act, 1999 (“the FEMA”), in the provisions that pertain to the Advance Payment against the exports under the Foreign Exchange Management Regulation (“the FEMR”).

The RBI, through its notification, sought to amend Regulation 15 (1) (ii) of the FEMR, 2015. As per the amendment, the following was substituted in Regulation 15 (1) (ii):

“the rate of interest, if any, payable on the advance payment shall not exceed 100 basis points above the London Inter-Bank Offered Rate (LIBOR) or other applicable benchmark as may be directed by the Reserve Bank, as the case may be; and”

The Regulation 15 of the FEMR is related to the Advance Payment against the exports, wherein, an exporter receives advance payment (irrespective of interest) from either a buyer or a third party whichever is named in the export declaration (as made by the exporter).

On this account, the exporter shall be mandated to ensure that if any Rate of Interest is decided, it must not outpace the Rate of Interest as set on London Inter-Bank Offered Rate (“LIBOR”) + 100 basis points or any other threshold directed by the RBI.

The Notification can be accessed at: http://www.a2ztaxcorp.com/wp-content/uploads/2021/09/Extraordinary-Gazette-No.-CG-DL-E-11092021-229553-dated-September-08-2021.pdf