FEMA & International Taxation

FDI is investment from a foreign entity into an Indian company. There are two routes: Automatic Route (no prior RBI/government approval needed, e.g., manufacturing, IT) and Approval Route (government consent required, e.g., defence, media, telecom). FC-GPR must be filed with RBI within 30 days of share allotment.

DTAA is a bilateral treaty between India and another country to prevent the same income from being taxed twice. India has DTAAs with 90+ countries including USA, UK, UAE, Singapore, and Mauritius. Benefits include reduced withholding tax rates on dividends, interest, and royalties. A Tax Residency Certificate (TRC) is required to claim treaty benefits.

Transfer Pricing requires that transactions between related parties (group companies) be at arm's length (fair market price). Indian entities with cross-border related party transactions must maintain a Transfer Pricing Study (Form 3CEB), filed by a CA by 31st October. Penalties for non-compliance are 2% of transaction value.

RBI Compounding is a process by which FEMA violations are settled by paying a penalty. Common violations include delayed FC-GPR filing, excess remittances beyond permissible limits, and failure to repatriate export proceeds. Compounding avoids prosecution and provides regularisation. The process takes 6–12 months.

LRS allows Indian resident individuals to remit up to USD 250,000 per financial year for education, travel, investment, gifts, or maintenance of relatives abroad. TCS at 20% applies on remittances above ₹7 lakhs under the amended LRS rules (except education/medical loans). Form 15CA/CB is required for certain payments.

ODI refers to Indian companies investing in foreign entities (subsidiaries, joint ventures). Under the automatic route, the Indian party can invest up to 400% of its net worth. Annual Performance Reports (APR) must be filed with AD banks. Strategic ODI structuring can optimise global tax efficiency.

FATCA (US law) and CRS (OECD standard) require Indian financial institutions to identify and report accounts held by US persons and tax residents of 100+ countries to the Indian government, which shares data with respective jurisdictions. High-value accounts above USD 1 million face enhanced due diligence. Non-compliance risks correspondent banking relationships.