Watch, Phone, Or Property: That Overseas Purchase via a Friend Could Get You in Trouble; Here’s Why

Overseas Purchase Via Friend: Asking a friend to make an advance payment for a luxury property, premium smartphone, or even a high-end smartwatch abroad can invite scrutiny from the Enforcement Directorate (ED). Such practices are fairly common, as individuals often rely on friends or acquaintances overseas to secure purchases at favourable prices. However, what seems like a harmless favour may put you on the wrong side of Indian regulations.

The ED has reportedly questioned individuals who had made purchase items abroad by letting others to pay on the behalf for the initial deposit, reported Economic Times citing sources. In few cases, individuals even received ED notice for letting others to make initial deposit or reserve money of nearly 30% or less, as per the report. GoodReturns couldn't independently verify the development.

Why Asking Friend For Advanced Payment For Overseas Purchase Can Invite Scrutiny?

Asking a friend or another person to make advanced payment or a foreign purchase can fall into the violation of rules under the Foreign Exchange Management Act (FEMA). Section 3 (a) ofthe act is central to the action in these cases. The section comes into effect generally in cases related to hawala operators, reported ET citing notices served to at least three persons.

What is FEMA?

Foreign Exchange Management Act, 1999 (FEMA), is a set of rules that empowers the Reserve Bank of India to pass regulations and enable the Indian government to pass rules related to foreign exchange. FEMA gives the Indian government the power to regulate the flow of payments to and from a person situated outside the country.

What is FEMA Section 3(a)?

The Section 3(a) in the FEMA Act 1999 is linked to dealining with foreign exchange. It is related to the transfer of any foreign exchange or any foreign security to any person not being an authorised person. The act states that no person shall "deal in or transfer any foreign exchange or foreign security to any person not being an authorised person."

For FEMA Section 3, "financial transaction" means making any payment to, or for the credit of any person, or receiving any payment for, by order or on behalf of any person, or drawing, issuing or negotiating any bill of exchange or promissory note, or transferring any security or acknowledging any debt, as per Incometaxinda.gov.in.

What To Do In Case You Receive An ED Notice In Such Case?

People can close the matter by contacting directorate officials as per the protocol, sharing copies of crucial documents, and bank account details and following the procedure, as per the ET report.

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