With the backdrop of revision of various frameworks for raising funds outside India (other than by way of equity participation), RBI has issued the Master Direction – External Commercial Borrowings, Trade Credits and Structured Obligations on 26th March, 2019, in supersession of the existing Master Direction – External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers dated 1st January, 2016 (last updated on 22nd November, 2018).
The new Master Direction seeks to consolidate all applicable circulars and notifications in respect of the following:
- External Commercial Borrowing framework (ECB framework) covered in the Master Direction as Part I
- Trade Credit framework covered as Part II
- Structured Obligations covered as Part III.
The first set of changes was introduced through the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 on 17th December, 2018. Thereafter, the New ECB framework was issued on 16th January, 2019 and the Trade Credit Policy on 13th March, 2019.
New Master Direction
The erstwhile Master Direction included provisions pertaining to borrowing and lending in foreign currency, which has now been removed and is solely dealt with by Foreign Exchange Management (Borrowing and Lending) Regulations, 2018. Further, it replaces the erstwhile ECB framework and Trade Credit framework with the recently issued frameworks, separately.
The revised ECB policy and Trade Credit Policy were issued, coinciding with Foreign Exchange Management (Borrowing and Lending) Regulations, 2018.
The changes introduced pursuant to new ECB policy and Trade Credit policy have been covered by our colleagues extensively in the following write ups:
- RBI revises ECB framework – aligns with FEM (Borrowing and Lending) Regulations, 2018
- RBI revises Trade Credit Policy Framework.
Few important additions in the revised frameworks, now consolidated under the Master Directions include Standard Operating Procedure for Untraceable Entities for Ad Banks, ECB for entities under resolution under IBC, ECB for resolution applicants, Late Submission Fee for late submission of returns.
The revision of the Master Direction which was originally issued in 2016 was quite anticipated in light of the recent changes made by RBI. Although the new Master Direction does not introduce any additional change in the ECB and Trade Credit framework, it unifies all the applicable policy frameworks, thereby giving more clarity.
The Reserve Bank of India (RBI) in its Sixth Bi-monthly Monetary Policy Statement for 2018-19 dated February 07, 2019 had declared that for the purpose of widening the spectrum of investors in the Indian corporate bond market, it will remove the cap on investment to be made by FPIs on corporate bonds. In furtherance to the declaration, the RBI on 15th February, 2019 issued a notification giving effect to the proposal.
Before we understand what the impact of the notification will be, let us recapitulate what the restrictions were. Read more
By Simran Jalan (firstname.lastname@example.org)
A company resident outside India may initiate business in India by setting up a subsidiary or branch office or liaison office or project office or any other place of business by whatever name called after taking prior approval of the Reserve Bank of India (RBI). Setting up any of the aforementioned place of business has different tax implications. The present discussion focuses on the tax implication on Liaison office under the Goods and Services Tax (GST) regime.