Opinion Of Eminent Legal Luminaries On Controversial Issues

Is It Permissible Under FEMA To Set Off Foreign Receipts And Payments?

QUERY: An Indian Company X which is situated in the Special Economic Zone, has entered into transactions during the financial year 2013-14 with a foreign Company Y in relation to the purchase and sale of goods or services. Co. X wishes to set off (or netting off) the export receipts against the amounts payable for imports. Whether the setting off (or netting off) of export receipts against amounts payable for imports by Co. X is permissible as per the Indian Exchange Control Regulations?
ANSWER: As per section 7 of FEMA 1999, exporters have to receive full value of export of goods or services:

Any arrangement involving adjustment of value of goods imported into India against value of goods exported from India, shall require prior approval of the Reserve Bank of India

Counter-trade is very common business practice in domestic trade. But, in inter-national trade, both payments and receipts are governed by separate regulations. Where the regulations do not give liberty to set off dues between the supplier and the importer, the importer is required to pay for imports separately, just as the exporter is obliged to realise the export proceeds in terms of these regulations.

Posted in Allied Laws
2 comments on “Is It Permissible Under FEMA To Set Off Foreign Receipts And Payments?
  1. Diana Mathias says:

    Dear Sir,

    As per master circular on Export of Goods and Services, set off of export receivables and import payable is permitted subject to the export receivables against import payments should be in respect of the same overseas buyer and supplier and that consent for ”set-off” has been obtained from him and certain other conditions.

    Request you to kindly clarify in light of the above circular.

    Thanks and regards

    Diana Mathias

  2. Prasad Gurjal says:

    can you kindly elaborate on this point please

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