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FEMA 2026

Effective 1^st Oct 2026

 By

CMA Nijay Gupta BCOM CAIIB ACMA PGDLII

FOREX & TREASURY ADVISOR

Mobile - 98672 63944

Email ID: nijaikgupta@yahoo.com

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FIEO

and

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“Understanding Forex Risk Management during COVID-19"

 By

Nijay Gupta BCOM CAIIB AICMAI PGDLII

FOREX & TREASURY ADVISOR

nijaikgupta@yahoo.com

98672 63944

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��FEMA 1999 changes effective 1^st Oct 2026���

• Ref: Sources: RBI Notifications under FEMA 1999
• Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026
• Notification No. FEMA 23(R)/2026-RB dated Jan 13, 2026
• https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13277&Mode=0 and

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• RBI/2025-26/194
• A.P. (DIR Series) Circular No. 20 Dated Jan 16, 2026
• https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13278&Mode=0

FEMA 1999 Effective 1^st Oct 2026

• RBI Notification No. FEMA 23(R)/2026-RB (Foreign Exchange Management [Export and Import of Goods and Services] Regulations, 2026) is a major regulatory overhaul superseding the 2015 framework. Taking effect on October 1, 2026, it consolidates previous circulars to simplify compliance and boost the ease of doing business.
• With effect from the date these directions come into force, the Master Direction – Export of Goods and Services and Master Direction – Import of Goods and Services and circulars listed shall stand superseded.
• Bottom Line: A balanced move — ease of doing business + tighter forex discipline

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• Facilitate external trade and payment
• Promote orderly development and
• Maintenance of foreign exchange market in India

The Act consolidated and amended laws relating to Foreign Exchange in India

FEMA Deals With

• Payments and Settlement
• Inflow and Outflow of Foreign Exchange
• How to receive and how to remit Foreign Exchange

As per FEMA provisions, payment for import as well as for export should be in an approved manner and within the prescribed time frame

Currency Convertibility

• Current account convertibility
• Capital account convertibility

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Objectives of FEMA

5

Current Account

Capital Account

Trade

Invisibles

Exports

Imports

Tour

Travel

Remittance

Gift

Profit/Div/int

FDI

Portfolio

Foreign Indian

Source Source

(FII/FPI)

(GDR/ADR)

Loan

(Govt/

Pvt(ECB)

Fcy A/C

RI & NRI

FOREIGN EXCHANGE TRANSACTIONS

The Regulatory Matrix

FEMA 2026 Effective 1^st Oct 2026

• FEMA 1999 Regulations from 1^st October, 2026
• International Trade – BOP Management and
• Management of Forex Reserves by RBI??????
• FCNR- B Deposits. ECB’s & OFCB by AD Bank?
• Impact of Money Supply on Treasury – RBI, Banks, NBFCs & Corporates/HNIs?
• Impact on Interest Rates & Bonds Revaluation?
• Hedging Strategies for Managing Currency Risk?
• FX Retail Platform www.ccilindia.com
• Ask The Expert — Q & A

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Department of Commerce,

Ministry of Commerce and Industry

Administration of Forex/Treasury in India

Foreign Trade

(Development and Regulation ) Act

(FTD&R Act),1992

Director General of Foreign Trade (DGFT) – FTP 2023

IEC NO.

GOVT. OF INDIA

Ministry of Finance

Dept. of Revenue/

Customs Act,1962

AD Code No. & IEC No. in ICEGATE Registration Indian Customs Electronic Data Interchange Gateway under CBIC

EDPMS/IDPMS

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Foreign Exchange Management Act (FEMA),1999

Repo & Rev Repo Rate

CRR/SLR, MM Operations

Reserve Bank of India (RBI)

Authorised Persons (APs) - Authorised Dealer Banks (ADs), (Banks)Authorised Money Changers (AMCs)/ CCIL,Primary Dealers/Mutual Frauds

Foreign Exchange Dealers’ Association of India (FEDAI) – Rule Book, FIMMDA & FBIL – Financial Benchmark India Ltd/AMFI

Other customers - Receivers/Savers and Senders/Spenders of Forex,

Securities, MM, Capital Market, Metal, Commodities & Mutual Fraud Investments - Investors

Importers and Exporters

Manufacturer/Merchant/Services

PAN, RCMC & GST No.

Regulatory Framework – Treasury & Forex

• Director General of Foreign Trade (DGFT) -FTP
• Stipulates regulations relating to physical movement of goods
• Drafts EXIM (Foreign Trade) Policy under Min. of Commerce
• Issues IEC to importers/exporters
• Reserve Bank of India (RBI) – FEMA 1999
• Stipulates regulations relating to movement of funds (FEMA)
• Stipulates credit norms for banks – Pre-Post shipment/ECB etc
• Reserve Bank of India – Securities, CRR, SLR, MM Operations & Intervention
• Foreign Exchange Dealers Association of India (FEDAI)- FEDAI RULE BOOK
• Apex Forum of Banks authorised to deal in Forex issues & guidelines
• Training of Bank personnel in the areas of Forex business
• Fixed Income Money Market & Derivatives Association of India (FIMMDA)
• To undertake developmental activities, such as, introduction of benchmark rates and new derivatives instruments, etc
• To devise standardized best market practices
• FBIL – Fixing the Mibor linked Rates/AMFI
• Exchanges – Capital Market, Commodities, Derivatives & Metal Market Exchanges
• CCILINDIA – MM/ FOREX PRODUCTS - FX RETAIL PLATFOM
• ICC - PARIS – INCOTERMS - 2020, UCP 600 (2007) , URC 522, URDG 758

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Global Economic Scenario

• Forex Reserves at USD 734.606 Bio – External Debt USD 778.20 Bio
• Good Forex FPI Outflows say USD 40 BN FY 27 despite liberalized ECB’s
• April- March FY26 Trade Deficit USD 340.60 BN FY 27 USD 147 BN
• Govt’s funding Trade deficit thru Capital inflows -ECB’s/FII’s/- FDI’s - leveraging on capital market and thru $ or Yen Carry Trade - How Long?
• INR ranges between 96.00 – 100.00, INR depreciated over 10% in FY 2026 & 7 % till FY 2027
• Forward Premiums 6 months 4.35% and 1 year at 3.70%
• Aug Retail CPI 4.90% Core Inflation 3.40% WPI 9.90% US CPI 3.40%
• BSE Index around 72583+ USD/INR 95.75
• US-Israel – Iran, Russia-Ukraine conflict will pose upside risks to inflation but downside risks to growth
• Monetary Easing – by Major Central Banks, Kho-Kho Geo-political situation of countries /West Asia war situation impacting the world markets. LIBOR above 3.62% for 1 year.
• “Great Divorce” between China/Europe/Japan/West Asia War/Geo-political Crisis
• India 10 Year G-Sec Bench Mark @ 7.39%, Repo 5.50%, Rev. Repo 3.35% CRR 3% SLR 18.00%, US 10 Year 5.23%, UK 5.45%, German 3.49% Japan 3.09%
• India FY 27 –GDP 6.00% - Sept CPI inflation 5.50% - 1%. expected

FEMA 2026 Effective 1^st Oct 2026

FEMA 2026 Effective 1^st Oct 2026

• These regulations may be called the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 come into force from October 01, 2026.
• Powers to Authorised Dealers: AD Banks shall handle transactions related to the export and import of goods and services, as well as merchanting trade, undertaken prior to October 01, 2026, which hitherto required approval of the Reserve Bank of India, under the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015,
• AD Bank may take note of the above clarifications and suitably align their internal processes and SOPs for implementation of the new Trade Regulations on its website.

FEMA 2026 Effective 1^st Oct 2026

• Unified Export-Import Framework: The legacy SOFTEX form for software exports is being phased out. A single, unified EDF now handles goods, services, and software exports.
• Export Declaration Form (EDF) for Services: : Service and software exporters must submit a consolidated monthly EDF to their AD bank within 30 days from the end of the invoice month. EDF mandatory for goods + services + software.
• Realization & Repatriation Timelines: The export realization timeline is 9 months for normal goods and services and 12 months if invoiced and settled in Indian Rupees (INR)

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FEMA 2026 Effective 1^st Oct 2026

• Greater Autonomy to AD Banks: AD banks are granted independent decision-making powers to handle routine export, import, & merchanting trade transactions (including pre-October 1, 2026 legacy cases) without needing prior RBI approval.
• Merchanting Trade Transactions (MTT): Standardized with a 6-month limit between outward and inward remittances, integrated into the live digital tracking modules of I/EDPMS.
• Caution List Continuity: Exporters placed on the RBI Caution List as of September 30, 2026, remain governed by those orders until formally removed.
• ₹10L shipments → Simplified EDPMS/IDPMS closure based on Exporter/Importer declaration or on quarterly also for bulk closures.

FEMA 2026 Key highlights

• Reduction in Export Realization: Reasons for under-realisation or non-realisation of full export value, allow reduction in realization of export value, provided the AD is satisfied of the reasons cited/Declaration given by exporter upto an amount of Rs. 10 lacs per shipping bill for export of goods or Rs. 10 lacs per invoice for Service exports on self declaration basis.
• Bank Monitoring: It mandates strict Authorized Dealer (AD) reporting through EDPMS and IDPMS within a 5-day timeline.
• Import Tightening: Advance import payments require settlement through a single bank (excluding gold/silver), and rules for unrealized imports have been tightened.
• Third party receipts and payments.(permitted with AD approval) provided Authorized Dealer is satisfied with the Bonafide's of the transactions.
• Set-off for Export Receivables against Import payables allowed with group/associate companies within the stipulated period for realization of export proceeds or extended period by AD.

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FEMA 2026 Key highlights

• Time period for making import payment: on request from the importer citing reasons for the delay, allow extension of time for making payment, beyond the period specified in the contract, if the AD is satisfied of the reasons cited. 6 months limit eliminated.
• Advance payment for exports and imports and delayed payment for imports:
• Exporter/Importer to route advance from same AD, however exporter/importer may route the receipt/ advance payment transactions through any other Authorized Dealer provided the exporter/importer has intimated the change to both the ADs.
• An AD may permit advance remittance for import after satisfying the genuineness of the requirement for advance remittance. The AD may consider specifying thresholds for advance payment, beyond which, the payment may require a standby Letter of Credit or a guarantee.
• An exporter, or an importer, as the case may be, shall ensure that interest payable, if any, on advance payment received for export, or on delayed payment for imports, shall not exceed the all-in-cost ceiling of trade credit of FEMA from time to time

FEMA 2026 Key highlights

• Import of gold and silver: No advance remittance shall be permitted by an Authorized Dealer for the import of gold or silver/precious metal.
• Unrealized exports → Future exports only against Advance /-LC -  if the export proceeds of an exporter remain unrealised for a period beyond one year from the due date of realization or extended period.
• Time Extensions: AD Banks can extend realization deadlines on a case-by-case basis if they satisfy themselves with the exporter's justification.
• Failed Import Repatriation: If an importer makes an advance payment but the import fails to materialize within the contract timeline, they must repatriate that advance immediately. If they fail to do so, all future advance import payments will require an unconditional, irrevocable standby Letter of Credit or a primary bank guarantee from a reputable international bank.
• Stronger compliance – Internal Policy & SOP responsibility on AD Banks – check annexure 1 ppt
• Merchanting Trade Transaction (MTT): check annexure 2 ppt

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What Businesses/AD Banks should do:

• Reconcile EDPMS & IDPMS
• Review export/import contracts for payment terms
• Prepare for EDF reporting
• Review advances & overdue transactions
• Obtain and understand their AD Bank’s FEMA 2026 SOP
• AD Bank shall endeavour to credit export proceeds received during foreign exchange market hours on the same business day and those received after market hours on the next business day
• AD Bank shall endeavor to credit inward remittances received during foreign exchange market hours on the same business day and remittances received after market hours on the next business day.

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What Businesses/AD Banks should do:

• Authenticated EDFs of Non-EDI Ports –RBI has requested the Customs authorities to direct the concerned Customs Authorities to send a copy of the duly authenticated EDF to the centralised team of the AD.
• Absence of Due Date in BoE Data – where the due date is not available in the Bill of Entry (BoE) data, RBI has clarified that, based on the BoE data, ADs should follow up with the importer to ascertain the due date as per the underlying contract for payment.
• Unrealised Exports and Imports Not Materialised –Based on Exporter/Importer declaration for Unrealised Exports and Imports Not Materialised, AD may handle such transactions based on Exporter/Importer declaration, may be the documents with another AD Bank of the exporter/importer
• where export proceeds remain unrealised beyond one year from the due date of realization, or such extended period as may be permitted by the AD, the condition requiring further exports to be undertaken only against full advance or an irrevocable Letter of Credit applies only to future export transactions between the specific exporter and the specific overseas buyer responsible for the unrealised export proceeds.

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Relief for Freelancers and Small Exporters & FERR-12^th Oct

• Relief for Freelancers and Small Exporters: Individuals receiving forex for personal use or small services (like online tutoring or independent content creation) are exempt from these business reporting requirements.
• (RBI) introduced a 20% Foreign Exchange Risk Reserve (FERR) requirement for ADs. This mandate forces banks to maintain a 20% cash reserve with the RBI at 0% interest for rupee-linked derivative contracts exceeding $2 mn used to hedge current account exposures where a user buys foreign currency against the INR. This will cost the importers/buyer of FC against INR
• Lowered Speculative Thresholds: The limit for booking derivative transactions without proving a concrete underlying commercial asset exposure was slashed from $100 million to $5 million

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Fresh Directives -12^th Oct

• An Authorized Dealer shall not permit users to rebook any foreign exchange derivative contract involving the INR, whether deliverable or non-deliverable, which has been cancelled with any of the ADs, after the issuance of these Directions.
• (b) An AD may, however, continue to permit users to rollover foreign exchange derivative contracts on maturity, subject to compliance with the provisions of the Master Direction
• RBI Measure: From 12 October 2026, RBI will meet the entire daily USD requirements of three PSU oil companies — IOCL, HPCL and BPCL — through designated banks.
• What about Reliance Industries & Nayara Energy???

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Annexure 1�Stronger compliance – Internal Policy & SOP responsibility on AD Banks

1) AD shall put in place a separate, comprehensive, well-documented internal policy and SOP, for handling transactions (including the reporting thereof) related to export and import of goods and services as well as MTT, in accordance with the Act, and Rules, Regulations and Directions issued;

(a) List of documents, timelines and charges for each process and approval.

(b) Extension of the time-period for export realisation and repatriation / import payments.

(c) Adjustment (under, over and non-realisation) of export proceeds to be realised and repatriated.

(d) Advance receipts for exports and advance payments for imports.

(e) Delegation of powers for internal approvals for each process.

(f) Export factoring and import factoring.

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Stronger compliance – Internal Policy & SOP responsibility on AD Banks contd…

(2) While laying down internal policy and SOP, an AD shall ensure that the responsibility for approving transactions is clearly delegated across internal levels. The policy and SOP shall also have an escalation process for handling customer grievances and an appeal mechanism wherein the appeal is handled at a higher internal level. The higher internal level should take a final decision based on the genuineness of the submissions made by the customer.

(3) An AD shall ensure that the charges levied for handling transactions and associated processes are reasonable and proportional to the services rendered. An AD shall not levy any charges or penalty on its constituent (exporter or importer or merchant trader) for any regulatory delay/violation by the constituent.

(4) An Authorised Dealer shall disclose policy and the main features of the SOP on its website

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Annexure 2�Merchanting Trade

Merchanting Trade: Timelines

• There is an import leg and an export leg to the transaction.

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• Goods do not enter territorial borders of India (DTA area).

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• Goods do not undergo any transformation/value addition.

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• Payments and documents flow into and out of India for both the legs.

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Ideally, commodities and custom-made equipment are handled under this route, as no further value addition is needed

Merchanting Trade: Timelines

• Entire merchanting trade transaction should be completed within overall period of 9 months
• EnStart date = Receipt of export advance OR Payment of import advance OR Shipment of goods, whichever happens first
• End date = Receipt of export settlement OR Settlement of import transaction OR Shipment of goods, whichever happens later.
• No foreign exchange outlay beyond 6 months - If advance payment made, final settlement of invoices to be received within 6 months from date of remittance
• Authorized Dealer may, on request citing reasons for delay, allow extension of time
• Authorized Dealer may, on request from the customer citing reasons, allow receipt from and/ or payment to any third party,
• The documents evidencing the MTT are provided to the AD, to establish the genuineness of the transactions.

Merchanting Trade: Timelines

• AD shall
• (a) credit or debit the account of its customer for any cross-border transaction related to MTT after having been satisfied with the genuineness of the same and shall, simultaneously close or update the respective entry in EDPMS and/or IDPMS.
• (b) monitor and follow-up with the person undertaking merchant trading to ensure that both the legs of the transaction are completed within the period and manner as specified in these Regulations

Merchanting Trade: Financing

• Trade credit can be availed for import leg of the transaction.

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• Documents pertaining to export leg may be discounted by AD.

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• Any financing being provided should not result in double financing to the trader
• Import leg can be financed to the extent advance payment has not been received for export leg, or export documents have not been discounted by the AD.
• Similarly, export finance can be provided to the extent it has not been supported by export advance or trade credit availed for the import leg.

Merchanting Trade: Documentation

• No Bill of Entry for import leg.

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• No Shipping Bill for export leg.

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• Import leg should be supported by all other documents including invoice, transport document, packing list, etc.

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• Export leg should be supported by all other documents except Shipping Bill.

Impact of West Asia War on International Trade - India

• Decreased Trade Volumes/ Higher Trade Deficit
• INR Depreciation to follow Higher Inflation
• Supply Chain Fragmentation – Goods, Gas, Fuel
• Increased Costs – Higher Shipping, Logistic, Travel, Insurance Premium & Hedging cost
• Geopolitical Disruption
• Impact on FDI/FPI Investments, Capital Market, Increase in Interest rates followed by Corporate/Insurance Co’s and MFs delinquencies

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International Trade Data FY 27 Expected

• Exports - USD 400 BN
• Imports - USD 800 BN
• Trade Deficit – USD 400 BN
• Funding of Trade Deficit
• NRI - USD 140 BN
• Swap/Fx Inter/ECB USD 160 BN
• Net Trade Deficit FY 27 USD 100

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Current Account

Capital Account

Trade

Invisibles

Exports

Imports

Tour

Travel

Remittance

Gift

Profit/Div/int

FDI

Portfolio

Foreign Indian

Source Source

(FII/FPI)

(GDR/ADR)

Loan

(Govt/

Pvt(ECB)

Fcy A/C

RI & NRI

FOREIGN EXCHANGE TRANSACTIONS

RBI’s Liquidity Management

• Forex Intervention: To smooth Forex Volatility & Boost Liquidity:
• Indirect Moral Intervention &
• Direct Forex Intervention (Spot Buy/Sell) & thru INR Sterilization
• Foreign Currency Swaps (Near or Forward to Forward swaps)
• Money Market: To control inflation & Money Supply/Liquidity
• INR Sterilization
• OMO – Buying or Selling of G-sec, Targeted Long Term Repo
• MPC measures thru Repo, CRR, SLR etc (Money Market Operations)

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What RBI is doing to protect USD/INR

AB KI BAAR, 100 KEY PAR – RBI on INR’s “Buddymoon”

RBI Intervening in the Spot/Swap Market

Spot –Sell $ - impact INR liquidity – than RBI does OMO in G-Sec;

Swap Deals – Buy $ Spot and Sell $ Fwd created, Over Sold Fwd USD – Present Fwd outstanding $100Bn

Reverse is when Supply of USD is more. RBI does INR Sterilization for Spot Purchases of $

INR Depreciated over 10% in FY 26, 7% till now.

Changes in FEMA 1999 effective 1^st Oct 2026 shall not make any difference for BOP management

Banks Dealing Room Operations�

Dealing Process

Customer

Bank Branch

Dealing

Room

Front Office

Mid-Office

Back Office

Domestic market

Global Market

Front Office: Actual dealing

Risk Taking,

Mid-Office: Risk

management,

accounting and MIS

Back Office: Settlement,

Reconciliation, compliance,

Accounting, Confirmation &

profit evaluation

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Functions of Treasury

Costing & Pricing - Hedging

Questions/POV’s

• Need & Importance for doing International Trade & Transfer of money for Individuals, Firms & Govt?
• Regulations for Settlement of International Trade thru Foreign Exchange? Barter to SWIFT - FEMA 1999 Effective 1^st Oct 2026.
• Why 85% of International Trade is settled in USD? De-Dollarisation?
• Impact of Sanctions like that on Russia/Iran, Tariffs & FTA’s etc?
• How do you cover Credit/Geo-political risk like West Asia War, Russia-Ukraine war, “Trump Gaza” post Israel-Gaza war, Sri Lanka/B-Desh/Nepal for Export business? – Role of ECGC??
• How do you Hedge your Forex Risk or USD/INR level thru PCFC or PC-INR or Thru Fwds, Futures & Options?
• Global Liquidity Management -War/Poor flows Impacting Forex Rates, LRS & Education/Employment
• March 2022|2026 –Increase in Interest rates by Major Central Banks impacted Silicon Valley Corpn Bank/First Republic Bank and West Pec Bank/Western Alliance Bank failure/Signature Bank? Swiss bank UBS Group AG agreed to buy Credit Suisse. & Huge MTM loss by RBI/Banks Treasury

What impacts Exchange rates?

• Country’s balance of payment situation : Outflows leads to currency depreciation.
• Crude Oil Price Brent touching USD 105 per barrel
• Rate of Inflation may touch 7% for March 2027 & beyond, Real GDP 0%
• Rate of Interest –Currency with higher interest rates appreciate in short term. 10 Year G-sec at 7.39% and 1 year T-Bill at 5.75%- Repo at 5.50% not relevant. Banks taking advantage of Arbitrage from RBI & TREPS of CCIL for Rs. 7 lac crores (1.50%+)
• Economic condition of the country and economic policies of the Government - –High/Low growth rate – Inflation not considered for GDP
• FPI outflows $41BN leads to depreciation of currency despite ECB liberalisations
• Direct intervention of Central bank to smooth out unduly large short-term fluctuations – Buy USD and sell INR – impact INR liquidity in market
• Swap – Buy $ spot and sell $ Fwd impact liquidity and Fwd outstanding position for USD 100 Bn
• Market Sentiment: perception of traders

Technical Reasons

- Government Control can lead to unrealistic value e.g. Middle East Currency etc.

- Speculation & Developments abroad – West Asia War/ Geopolitical situation

• Comments from FM/RBI Governor/Rating Agencies
• Demand and Supply of Forex at any given point of time

What RBI should do to protect USD/INR

• Stop Accumulating Fx Reserves beyond USD 300BN.
• Present Fx Reserves mainly on Revaluation of Gold, RBI did not cover Gold Purchases for issue of Sovereign Gold Bonds;
• RBI/IRDA realized Banks/Distributors Mis-selling Insurance very late. RBI atleast can now stop Banks mis-selling Mutual Funds for commission & overseas trips, which is forcing banks to pay high interest rates on FD’s and not SB accounts, resulting in higher CD ratio over 80% & Scams like IDFC/Kotak;
• Can sell old Govt offices/Lutyens’ Homes to reduce dependency on FPI/ECB flows or encourage some more deals like RCB/RR - IPL teams for flows;
• RBI lost Rs. 100,000 Crore in MTM of G-sec for increase in interest rates by Major Central Banks in March 2022. RBI covered loss by selling USD from FX Reserves accumulated over years at lower rates. Poor Risk Management by RBI. Now Banks are losing in G-sec MTM
• RBI/DGFT to reduce Trade Deficit over USD 100 Bn with China

Thank You

Any Questions??