Release of foreign exchange for Miscellaneous Remittances – RBI Circular

The Reserve Bank of India (RBI) issued a pivotal directive under A.P. (DIR Series) Circular No. 13 on July 3, 2024[1], ushering in substantial changes to the regulations governing cross-border remittances in India. This directive supersedes previous guidelines and aims to streamline regulatory compliances while enhancing operational procedures for foreign exchange transactions.

Historically, Authorized Dealers (ADs) were allowed to release foreign exchange for current account transactions up to USD 25,000 without the requirement of Form A2, provided the payment was made via Demand Draft or cheque. This leniency was outlined in A.P. (DIR Series) Circulars No. 16 (September 12, 2002), No. 55 (December 23, 2003), and No. 118 (May 7, 2012). However, the latest circular mandates that ADs must now obtain Form A2 for every cross-border remittance, irrespective of the transaction amount. This change marks a departure from the previous threshold-based approach and underscores the RBI’s commitment to bolstering regulatory compliance and ensuring comprehensive documentation of all foreign exchange transactions.

The withdrawal of earlier circulars effectively nullifies the exemptions previously granted based on transaction value, signalling a significant shift in the regulatory framework governing foreign exchange management in India. ADs are now required to adhere strictly to the new directive to maintain compliance with Section 10(5) of the Foreign Exchange Management Act (FEMA), 1999. This statutory requirement mandates that all transactions must be vetted to ensure they do not contravene FEMA provisions.

Operationally, ADs are instructed to promptly disseminate the contents of the circular to their constituents. The directive, issued under Sections 10(4) and 11(1) of FEMA, aligns with other regulatory permissions and approvals, reinforcing the integrity and transparency of India’s financial system.

The implications of these changes are far-reaching. Firstly, the mandatory submission of Form A2 for all remittances enhances regulatory oversight, promoting greater transparency in foreign exchange operations. This move aligns with global standards for financial transaction transparency and safeguards against potential misuse of foreign exchange channels. While this requirement may necessitate initial adjustments in operational procedures for ADs and their clients, it streamlines the documentation process across transaction sizes, simplifying compliance and audit procedures.

Furthermore, by enforcing Form A2 for all transactions, the RBI strengthens the security and integrity of cross-border remittances, mitigating risks associated with illegal financial activities. ADs are now tasked with diligently verifying the purpose and legitimacy of each transaction to prevent any potential breaches of FEMA regulations, ensuring robust compliance measures are in place.

In conclusion, the RBI’s latest directive represents a proactive step towards reinforcing the regulatory framework governing foreign exchange transactions in India. By mandating Form A2 for all cross-border remittances, regardless of transaction value, the RBI enhances regulatory oversight, promotes transparency, and strengthens the resilience of India’s financial system against illicit financial activities. While adjustments are necessary initially, these measures are expected to yield long-term benefits in maintaining a secure and transparent financial environment conducive to economic growth.

[1] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12696&Mode=0