All About FC-TRS Reporting Requirement

Published Mon, 19 Jun 2023 FEMA

One of the important forms needed for FDI Reporting in case of transfer of shares or convertible debentures of an Indian Corporation from a resident to a Non-Resident/Non-Resident Indian and vice versa by means of sale is the Foreign Currency Transfer Reserve System (FC-TRS). This article aims to provide an in-depth understanding of the FC-TRS, its significance, the reporting process and various aspects related to it.

What is FC-TRS?

FC-TRS is an online reporting mechanism implemented by the RBI to monitor foreign currency transactions in India. It is a part of the RBI's broader initiative to enhance transparency and maintain an orderly exchange market. The FCTRS reporting requirement is governed by the Foreign Exchange Management Act (FEMA), which is a framework established by the RBI to regulate foreign exchange transactions in the country. It is a form used by shareholder resident outside India and resident Indian or vice versa when they transfer their shares. The form FC-TRS will be submitted to its authorized dealer bank (AD Category I Bank), who will submit the same to the RBI.

When is FC-TRS required to be filed?

When shares or convertible debentures of an Indian company are sold to a non-resident or non-resident Indian and vice versa, Form FC-TRS must be filed. The Indian corporation is needed to submit the FC-TRS form to the AD Category-I bank in order to report the transactions.

FC-TRS captures the reporting of inflow/outflow details on account of remittances received / made in connection with the transfer of shares or convertible debentures, by way of sale, in a comprehensive manner.

Who Needs to Comply with FC-TRS Reporting Requirement?

Form FC-TRS is required to be filed through Single Master Form (SMF) on firms web application by a Company, LLP or any individual for transfer of capital instruments by way of sale in accordance with FEMA 20(R), from:

1. a person resident outside India holding capital instruments in an Indian company on a repatriable basis to a person resident outside India holding capital instruments on a non-repatriable basis;
2. a person resident outside India holding capital instruments in an Indian company on non-repatriable basis to a person resident outside India holding capital instruments on repatriable basis;
3. a person resident outside India holding capital instruments in an Indian company on repatriable basis to a person resident in India;
4. a person resident in India holding capital instruments in an Indian company to a person resident outside India holding capital instruments on repatriable basis.
5. transfer of capital instruments by way of gift from a person resident outside India to a person resident in India or vice versa.

Also, one of the most important thing is that the Indian resident, whether the transferor or the transferee, is responsible for filing the Form FC-TRS.

Note: If a non-resident investor buys shares on a stock exchange, the investee company is responsible for filing the FC-TRS form.

Non Applicability of filing FCTRS

FC-TRS is not required to be filed for:

1. for transfer of shares of an Indian company from a non-resident holding the shares on non-repatriable basis to a resident and vice versa.
2. for transfer of shares from a person resident outside India holding capital instruments in an Indian company on a repatriable basis to a person resident outside India holding capital instruments on a repatriable basis

FCTRS Reporting Timeline

As per the RBI guidelines, the form FC-TRS shall be filed with the Authorized Dealer bank within Sixty days from transfer of capital instruments or receipt/remittance of funds whichever is earlier.

Penalty for Delayed Reporting

Non-compliance in the FCTRS reporting requirement can lead to severe consequences, including monetary penalties, restrictions on future foreign currency transactions, and even legal proceedings. If the Company reports a transfer of a capital instrument after a period of 60 days following the transfer of the capital instrument or the receipt/remittance of funds, whichever occurs earlier, the Company will be subject to late submission fees (LSF) as determined by the Reserve Bank of India in consultation with the Central Government. Following LSF is prescribed by RBI for delayed reporting.

Amount involved in Reporting (in INR)	LSF as % of amount involved*	The maximum amount of LSF applicable
Upto INR 10 millions	0.05%	INR 1million or 300% of the amount involved whichever is less
More than INR 10 millions	0.15%	INR 10 million or 300% of the amount involved whichever is less

* Percentage of LSF will be doubled every 12 months. The floor (minimum necessary amount) of LSF will be INR 100

Process of filing FC-TRS

The government has introduced a new, streamlined Single Master Form ("SMF") to streamline reporting. Nine forms have been combined under SMF, and the person may file the appropriate form by logging into the FIRMS portal (https://firms.rbi.org.in/firms/faces/pages/login.xhtml).

The following steps are required to be followed for filing FC-TRS form:

1. Creation of Business User Account: The applicant who wants to report FDI must register for a business user account on the FIRMS Portal. The applicant must enter basic information of the authorised person who will file the form on the company's behalf, together with the authority letter that has been properly signed and completed, in order to create an account. The registration will be reviewed by the relevant AD Bank Branch. The business user will receive email notification of the approval or rejection.
2. Log in into FIRMS Portal: Following the creation of the business user ID, the applicant will get login information on the registered email address with an option to change the default password. The applicant must log in again after changing the password.
3. Filling up and submitting the form: the applicant will be directed to the workspace after logging into the SMF portal wherein the form FC-TRS will be selected. The applicant must fill out all transaction-related information along with the necessary attachments as mentioned below in this article. Thereafter, the applicant must save and submit the form.
4. Form Approval or Rejection: After submission, the form is forwarded to the entity's AD Bank, who will review it. The application can either be accepted or rejected. The applicant has no choice except to submit their application again if the same gets rejected due to discrepancies. Also, if the form submission is delayed beyond the prescribed period of 30 days, it will be directed to the Reserve Bank of India who shall compute the LSF amount and the applicant will be notified about the same via the registered email address.

Note: AD Bank will have only 5 working days for approving or rejecting the form or sending it to Reserve Bank of India.

Documents required for filing FC-TRS

The following documents shall be required while filing the FC-TRS:

In Case of Transfer by way of Gift

• Declaration from Non-Resident Transferor or Transferee in the Prescribed Format
• Regulatory Approvals, if any
• Consent Letter between both donor and done
• Pre and Post Shareholding Pattern of the Company
• Copy of Board Resolution approving such transfer
• Reason of Delay, if any

 In Case of Transfer by way of Sale

• Transfer Agreement along with Consent of both seller and buyer
• Valuation Certificate as per the pricing guidelines under FEMA
• Declaration from Non-Resident Transferor or Transferee in the prescribed Format
• In case the seller is a Non-Resident, then acknowledgement of FCGPR or FCTRS as filed earlier by the Company
• FIRC/FORC from the Bank
• KYC of beneficiary from Bank
• Pre and Post Shareholding Pattern of the Company
• Copy of Board Resolution approving such transfer
• Reason of Delay, if any

Key Considerations for FCTRS Compliance

To ensure full compliance with the FCTRS reporting requirement, Indian entities involved in foreign currency transactions should consider the following key points:

1. Timely submission of Form FC-TRS and supporting documents
2. Accurate reporting of transaction details, including parties involved, nature of the transaction, and amount involved
3. Regular monitoring of FCTRS guidelines and updates issued by the RBI
4. Seeking professional advice and assistance, if required, to ensure full compliance

Conclusion

The FCTRS reporting requirement of the RBI is a critical aspect of foreign currency transaction compliance in India. By adhering to the guidelines and reporting requirements, Indian entities can avoid penalties and ensure smooth functioning of their businesses. Additionally, the FCTRS reporting requirement promotes transparency and helps maintain an orderly foreign exchange market in the country. With globalization and increasing cross-border transactions, it is essential for businesses to stay updated on the regulatory requirements and ensure timely compliance to avoid any adverse consequences.

You can easily file Form FC-TRS with RBI by adhering to the guidelines indicated above. Make sure to submit the form by the deadline. If you are looking for expert assistance in complying with the FC-TRS reporting requirements, don't hesitate to contact us at info@companiesnext.com