The Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991

summary of the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991:
Objective:
To attract large inflows of foreign exchange by providing immunities and exemptions to persons receiving remittances in foreign exchange and owning Foreign Exchange Bonds.
Key Components:
1. Remittances of Foreign Exchange
• Definitions:
• Recipient: Person in India receiving remittances.
• Remittance: Foreign exchange received in specified forms from outside India, between the Act's commencement and a specified date (initially 1st December 1991).
• Immunities (Section 3):
• No disclosure required on the nature and source of remittance.
• No inquiry/investigation can be initiated based on receiving such remittances.
• Remittance details are inadmissible as evidence in certain proceedings.
• Exemptions (Section 4):
• Remittances not considered for income tax purposes (though income from remittances is taxable).
• Not included in net wealth for wealth tax purposes for assessments before 1st April 1992.
2. Investment in Foreign Exchange Bonds
• Definitions:
• Foreign Exchange Bonds: Issued by the State Bank of India under a specified scheme, for investments made between the Act's commencement and a specified date (initially 1st December 1991).
• Non-Resident Indian (NRI) and Overseas Corporate Body definitions provided.
• Immunities (Section 6):
• Similar to those for remittances: no disclosure, no inquiries based on bond ownership, and inadmissibility of bond ownership as evidence.
• Exceptions for foreign exchange not brought into India as required by other laws.
• Exemptions (Section 7):
• Interest from bonds not subject to income tax.
• Bonds not subject to wealth tax.
• Gifts of bonds not subject to gift tax under certain conditions.
Scope and Exceptions:
• Extent: Whole of India.
• Exceptions to Immunities:
• For foreign exchange required to be brought into India under other laws with unexpired periods.
• For prosecutions under specific criminal laws (e.g., Indian Penal Code, Narcotic Drugs and Psychotropic Substances Act) and civil liability enforcement.
Administration:
• Schemes for remittances and bond investments to be laid before Parliament by the Central Government.

Legislative History:

The Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991

Short Title The Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991

Act Number / Year Act No. 41 of 1991

Act ID (India Code) 199141

Presidential Assent / Enactment Date September 18, 1991

Enforcement Date September 18, 1991

Nodal Ministry Ministry of Finance

Precedent & Statutory Rationale

• Severe Balance of Payments Crisis and Foreign Exchange Depletion:

o In mid-1991, India faced an unprecedented balance of payments crisis, with foreign exchange reserves plummeting to dangerously low levels insufficient to finance even a few weeks of essential imports.

o There was an urgent, critical need to attract massive inflows of foreign capital and unremitted funds held abroad by Indian nationals and non-residents without subjecting them to immediate scrutiny regarding the source of funds under tax and exchange control laws.

• Legislative Intervention and Regularization:

o Enacted to grant special immunities and exemptions from income tax, wealth tax, gift tax, and the Foreign Exchange Regulation Act (FERA) to persons making remittances into India or investing in designated foreign exchange bonds.

o The core objective was to incentivize capital repatriation, bolster official foreign exchange reserves, restore macroeconomic stability, and shield contributors from inquiries or prosecution regarding the origins of the remitted funds.

Parliamentary Trajectory & Enactment

• Formulation: Designed by the Ministry of Finance as an emergency financial measure alongside the historic 1991 structural economic reforms package to salvage India's international credit standing.

• Parliamentary Passage: Passed by both houses of Parliament during the emergency economic stabilization drive, receiving formal presidential assent on September 18, 1991.

• Enforcement: Enforced on September 18, 1991.

• Source: India Code and Ministry of Finance Official Records.