Export Regulations in India

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Questions and Answers

Which of the following criteria must a firm meet to be eligible to transact through a Diamond Dollar Account?

A requirement to operate more than five Diamond Dollar Accounts.

A minimum required turnover of Rs. 1 crore in the last three years.

An average annual turnover of Rs. 5 crores during the preceding three licensing years.

A history of at least 2 years in import/export of diamonds or jewellery. (correct)

How many Diamond Dollar Accounts is a company allowed to open?

Up to five Diamond Dollar Accounts. (correct)

Ten Diamond Dollar Accounts as a maximum.

No limit, based on operational needs.

Only one Diamond Dollar Account.

What is the average annual turnover threshold for firms to qualify for a Diamond Dollar Account?

Rs. 1 crore or above.

Rs. 3 crores or above. (correct)

Rs. 4 crores or above.

Rs. 2 crores or above.

Which type of bank can a person resident in India approach to open an Exchange Earners’ Foreign Currency Account?

An AD Category – I bank in India. Signup and view all the answers

What key regulatory change occurred regarding the reporting of Diamond Dollar Accounts as of March 23, 2016?

Submission of fortnightly and quarterly reports has been abolished. Signup and view all the answers

Who can apply for permission to open a Diamond Dollar Account?

Eligible firms and companies with a track record in relevant areas. Signup and view all the answers

What conditions must be applied under Para A.6 (iv) for the DDA?

Regulations similar to those for Exchange Earners’ Foreign Currency Account. Signup and view all the answers

Which of the following types of jewellery is included under the Diamond Dollar Account eligibility criteria?

Polished diamonds and diamond-studded jewellery. Signup and view all the answers

What is required for the settlement of export transactions in currencies that do not have a direct exchange rate?

The exporter must have a signed contract in freely convertible currency. Signup and view all the answers

Which of the following statements is true regarding the invoicing of export transactions?

Invoices must contain a provision for payment to a third party. Signup and view all the answers

What must an AD Category-I bank verify before allowing settlement in currencies without a direct exchange rate?

The bonafides of the transactions. Signup and view all the answers

What is the role of the Foreign Exchange Department of the Reserve Bank of India regarding transactions in INR?

Prior approval is needed from this department before AD banks can engage in INR settlements. Signup and view all the answers

What measures are imposed on the counterparties of exporters/importers when dealing with AD banks?

They cannot be from countries on the FATF's high-risk list. Signup and view all the answers

What condition must be met for an exporter to settle transactions in a currency other than the original invoicing currency?

The beneficiary must agree to receive payment in their preferred currency. Signup and view all the answers

In what situation can payments for imports be made to a third party according to the regulations?

When the Bill of Entry clearly mentions the named third party. Signup and view all the answers

Which of the following statements correctly describes the settlement of export transactions not using the ACU mechanism?

They are subject to specific conditions set by the AD banks. Signup and view all the answers

Under the Foreign Exchange Management Act, 1999, which conditions apply to the invoicing of cross-border trade transactions in INR?

All exports and imports may be denominated and invoiced in Rupee (INR). Signup and view all the answers

What determines the exchange rate between the currencies of the trading partner countries for INR-based transactions?

The exchange rate is market determined. Signup and view all the answers

What must occur for an Indian importer making payments in INR under the Rupee Payment Mechanism?

Payments must be credited to the correspondence bank's account in the partner country. Signup and view all the answers

What is required before Indian banks allow receipt of advance payments against exports in Indian rupees?

The available funds in the accounts must be used for previous export obligations. Signup and view all the answers

What documentation requirements must be met for export/import settled under the INR mechanism?

Usual documentation and reporting requirements are mandatory. Signup and view all the answers

Which statement describes the role of Letter of Credit (LC) under this framework?

It can be mutually agreed upon between banks of the partner countries. Signup and view all the answers

What is the primary purpose of opening Special Vostro Accounts according to the Foreign Exchange Management (Deposit) Regulations?

To enable settlement of international trade transactions in INR. Signup and view all the answers

In what capacity can Indian exporters receive advance payments under the Rupee Payment Mechanism?

In Indian Rupees directly from overseas importers. Signup and view all the answers

What is the primary requirement for exporters to operate a temporary foreign currency account abroad?

The balance must be repatriated to India within one month after the exhibition. Signup and view all the answers

Which type of application form must exporters complete to open a foreign currency account with AD banks?

Form EFC Signup and view all the answers

An Indian entity can open a foreign currency account abroad under what condition?

Remittance must be made for normal business operations of its overseas office. Signup and view all the answers

Which of the following statements is correct regarding the operation of foreign currency accounts by units in Special Economic Zones (SEZ)?

SEZ units can open foreign currency accounts in India subject to certain conditions. Signup and view all the answers

What entity must exporters submit full details to when operating a temporary foreign currency account abroad?

The AD Category – I banks concerned Signup and view all the answers

For which purpose can an Indian entity maintain a foreign currency account abroad?

For normal business operations of the overseas office or branch Signup and view all the answers

What identifies an AD Category – I bank in the context of foreign currency accounts?

They are authorized to handle foreign exchange transactions and accounts. Signup and view all the answers

Which regulation governs the opening of foreign currency accounts by residents in India?

Regulation 5 of the Foreign Exchange Management Regulations Signup and view all the answers

What is required for AD Category – I banks to release the EDF (duplicate) when receiving payment from overseas buyers via credit card?

A certificate from the exporter’s bank confirming foreign exchange receipt Signup and view all the answers

Which currencies can transactions be settled in under the ACU mechanism?

ACU Dollar, ACU Euro, ACU Japanese Yen Signup and view all the answers

What special provision exists for trade transactions with Myanmar regarding currency settlement?

They can be settled in any freely convertible currency Signup and view all the answers

What change occurred regarding payment transactions with Iran from December 27, 2010?

Eligible transactions can be settled in any permitted currency outside the ACU mechanism Signup and view all the answers

When was the processing of export-related receipts through online payment gateways established?

October 31, 2023 Signup and view all the answers

What is a fundamental requirement for AD Category – I banks regarding ACU accounts with correspondent banks?

All transactions should be settled through these accounts Signup and view all the answers

What is the significance of the Asian Monetary Unit (AMU) in the context of ACU transactions?

It is denominated as equivalent to widely recognized major currencies Signup and view all the answers

For export payments made using foreign credit cards, what must an AD Category – I bank have if it is not the credit card servicing bank?

A certificate of receipt from the credit card servicing bank Signup and view all the answers

What is the primary restriction on accounts held under the EEFC scheme?

They cannot maintain assets in foreign currency. Signup and view all the answers

What must be done with the total accruals in an EEFC account by the end of the succeeding calendar month?

They must be converted into Rupees, with certain adjustments. Signup and view all the answers

Which of the following is NOT an eligible credit for an EEFC account?

Payments for foreign currency loans raised from abroad. Signup and view all the answers

Who is allowed to include joint holders in their EEFC accounts?

Resident individuals with close relatives. Signup and view all the answers

Which of the following is a characteristic of the EEFC account?

It is a non-interest bearing current account. Signup and view all the answers

What is the purpose of the EEFC scheme for exchange earners?

To enable savings on conversion/transaction costs. Signup and view all the answers

Which type of payment is eligible to be credited to an EEFC account?

Payments for goods supplied to a unit in Export Processing Zone. Signup and view all the answers

What is the consequence if a resident individual fails to convert their accruals in an EEFC account by the stipulated time?

The funds may be levied with a penalty. Signup and view all the answers

Study Notes

Part A - General Introduction

Export trade in India is regulated by the Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce and Industry.
DGFT publishes export policies and procedures.
Category I banks conduct export transactions according to the Foreign Trade Policy and Reserve Bank of India directions.
The Foreign Exchange Management Act, 1999 (FEMA) defines the Export Regulations, 2015.

Part A - General Information (continued)

Direction on export related transactions must be read with Foreign Exchange Management (Current Account Transactions) Rules 2000.
AD Category 1 banks can guarantee export transactions for exporter clients (subject to conditions)
There are no restrictions on using Indian Rupees for export contracts within the Foreign Exchange Management Act 1999.

Part A - General Information (Page 2 onward)

Export proceeds must be realized in freely convertible currency or in Indian rupees (in a Vostro account, excluding Nepal and Bhutan).
Import and export transactions can be in Indian Rupees, following specified conditions and Circulars (such as Circular No 10 dated 11th July 2022).
ACU dollar, Euro and Japanese yen are optional settlement currencies.
The settlement of payments can be done through special Vostro accounts.
For export transactions with Iran/Sri Lanka, settlements should be outside the ACU mechanism,
Trade transactions with Myanmar can be settled in freely convertible currencies or through ACU mechanism.
Operations in ACU Euro are temporarily suspended since July 2016.

Third Party Payments

Export/import transactions can allow third party payments, adhering to strict conditions (irrevocable orders, tripartite agreements, verification of export documents).
Third party payments should be routed through banking channels.
Exporters are responsible for receiving and remitting export proceeds to the third parties.

Manner of Receipt and Payment

Export proceeds should be received within 9 or 15 months (depending on specific circumstances, such as export to warehouse in another country).
Payments can be received through AD banks and other online payment gateways.
When payment is received for goods sold to overseas buyers attending a specific event, duplicate information needs to be released by the bank.

Trade Settlements

Participants in exhibitions/trade fairs can get temporary foreign currency accounts, enabling repatriation of funds within one month of event closure.
Reserve Bank allows opening of foreign currency accounts by exporters subject to conditions and using the Form EFC.
Foreign currency accounts can be opened/maintained in India or outside by individuals adhering to regulations, including enabling close relatives participation.

Diamond Dollar Accounts

Firms dealing in purchase/sale of diamonds, precious metals, and jewellery have a pathway to open Diamond Dollar Accounts.
At most five accounts can be opened.
Turnover and licensing history are relevant factors.

Exchange Earners' Foreign Currency Account (EEFC)

Resident Indians can apply for EEFC accounts at AD Category I Banks.
EEFC accounts can be only held as non-interest bearing current accounts.
The entire sum total of the accrual during a calendar month is converted into Indian Rupees by the end of the succeeding month, and used for authorized purposes.
The eligible credits represent inward remittance adhering to certain rules.

Counter Trade Arrangement

Counter-trade proposals involving adjusting value of goods exported/ imported are possible, conditional upon the use of Escrow accounts.
Interest is not payable in such Escrow accounts.
Overseas party has to appoint their AD Category I bank to apply in the name of the party for opening the Escrow account.

Export to Neighboring Countries

Export can be done to neighboring countries through road, rail and river.

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Description

This quiz covers the fundamental aspects of export trade regulations in India as enforced by the Directorate General of Foreign Trade. Participants will learn about export policies, the role of Category I banks, and the implications of the Foreign Exchange Management Act of 1999 on export transactions.