Mitali Diamonds Limited is a company engaged in the business of cutting, polishing and trading of diamonds in and outside India. The company exports…
CA Intermediate · Corporate and Other Laws · PYQS · September 2024
Mitali Diamonds Limited is a company engaged in the business of cutting, polishing and trading of diamonds in and outside India. The company exports the diamonds to USA. For the last five financial years, the foreign exchange earned by the company in exporting diamonds is as under: FY 2023-24 USD 1,25,000 FY 2022-23 USD 1,10,000 FY 2021-22 USD 95,000 FY 2020-21 USD 98,000 FY 2019-20 USD 93,000 The company wants to give donation of USD 10,000 to an institution situated in USA which provides technical support and training in the field of cutting and polishing of raw diamonds. This will help the company in guiding its own employees, posted in USA to get the requisite training. Referring to the provisions of the Foreign Exchange Management Act, 1999, state whether the company can give donation to such institution in USA?
Suggested Answer and Working Notes:
As per Schedule III to the Foreign Exchange Management Act, 1999, remittances by persons other than individuals shall require prior approval of the Reserve Bank of India, for donations exceeding 1% of their foreign exchange earnings during the previous three financial years or USD 5,000,000, whichever is less, for: a. Creation of Chairs in reputed Educational Institutes, b. Contribution to Funds (not being an investment fund) promoted by Educational Institutes; and c. Contribution to a Technical Institution or Body or Association in the field of activity of the Donor Company. In the given question, Mitali Diamonds Limited can donate lower of USD 3,300 [1% of (1,25,000 + 1,10,000 + 95,000)] or USD 5,000,000. Thus, Mitali Diamonds Limited can give a donation of USD 3,300 without RBI approval and for USD 10,000 it shall require prior approval of the Reserve Bank of India to the said institution as this institution is a Technical Institution or Body or Association in the field of activity of the Donor Company.
Topics: The Foreign Exchange Management Act, 1999
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