Examine the given situations in the light of the FEMA, 1999: 1. LMN Ltd. had total foreign exchange earnings of USD 600 million in the last three…

The given situations can be examined in the light of the Schedule II of the FEM (Current Account Transactions) Rules, 2000. According to the Regulation, wherever, Donations exceeding one per cent. of their foreign exchange earnings during the previous three financial years or USD 5,000,000, whichever is less, it shall require prior approval of RBI. Accordingly, following shall be the answers: (1) 1% of Foreign Exchange Earnings = (1/100) × 600 million = USD 6 million USD 5 million limit (whichever is less) applies. Since USD 5 million is less than USD 6 million, LMN Ltd. can donate up to USD 5 million without RBI approval. (2) 1% of Foreign Exchange Earnings = (1/100) × 250 million = USD 2.5 million Maximum limit before requiring RBI approval = Lesser of USD 2.5 million or USD 5 million = USD 2.5 million Since USD 3 million exceeds the limit of USD 2.5 million, STU Ltd. needs RBI approval.