The Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991
📖 The Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991
1. Background
In the late 1980s and early 1990s, India faced a severe foreign exchange crisis.
To overcome this, the Government needed to attract foreign currency inflows quickly.
Non-Resident Indians (NRIs) were seen as a major source of foreign exchange.
Therefore, this Act was passed in 1991 to:
Encourage NRIs to remit foreign exchange to India.
Provide them immunity and tax exemptions to make investment attractive.
It was similar in spirit to earlier laws like the Special Bearer Bonds (Immunities and Exemptions) Act, 1991, but focused specifically on foreign exchange remittances and bonds.
2. Objectives of the Act
To encourage inflow of foreign currency from NRIs and foreign investors.
To provide immunities against inquiries or investigations relating to the source of foreign exchange.
To give tax exemptions on such remittances and investments.
To strengthen India’s foreign exchange reserves.
3. Key Provisions of the Act
(a) Scope
Applies to:
Remittances of foreign exchange into India by NRIs.
Investment in Foreign Exchange Bonds, issued by the State Bank of India (SBI) under directions of the Central Government.
(b) Immunities Granted
No inquiry will be made by any authority in India regarding the source of the foreign exchange.
The person receiving such foreign exchange or holding such bonds is protected from:
Civil or criminal proceedings,
Disclosure obligations under any other law.
(c) Exemptions Granted
Income Tax: The amount of remittance and interest earned on the bonds is exempt from income tax.
Wealth Tax: Such bonds or remittances are exempt from wealth tax.
Gift Tax: Gifts made out of such foreign exchange remittances are exempt.
(d) Use of Foreign Exchange
The remitted foreign exchange must be:
Deposited in India, or
Invested in bonds notified by the Government.
(e) Confidentiality
Identities of remitters were kept confidential to encourage inflows without fear of scrutiny.
4. Importance of the Act
Boosted India’s foreign exchange reserves during a financial crisis.
Gave confidence to NRIs that their money would be safe and tax-free.
Encouraged investment through SBI bonds, strengthening India’s external finances.
Showed India’s willingness to give temporary tax and legal immunities in times of economic need.
5. Case Law
1. All India Federation of Tax Practitioners v. Union of India (1991, SC)
Issue: Whether giving such immunities was constitutional.
Petitioners argued it violated Article 14 (equality) as it gave undue benefit to NRIs.
The Supreme Court upheld the validity of the Act.
Reasoning: The law was passed in the larger public interest to save India from an economic crisis.
2. Union of India v. Azadi Bachao Andolan (2003, SC) (though related to Double Taxation Treaties, principle relevant)
The Court observed that special tax exemptions and immunities given to attract foreign exchange are a valid exercise of Parliament’s powers.
It cited earlier legislations like this Act as examples of permissible economic policies.
3. Harsh Dhingra v. Union of India (Delhi HC, 1992)
Challenge was made against the secrecy provisions.
Court upheld them, stating confidentiality was essential to achieve the object of attracting foreign exchange inflows.
6. Criticism of the Act
Critics said it encouraged money laundering and black money since no questions were asked about the source.
It created a sense of unfairness for ordinary Indian taxpayers, who did not enjoy such immunities.
However, the Government defended it as a one-time emergency measure.
7. Conclusion
The Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991 was an emergency economic legislation.
It provided immunity from inquiry and tax exemptions for foreign remittances and investments in SBI bonds.
Helped India overcome a severe forex crisis.
The judiciary upheld its constitutional validity, recognizing the public interest behind it.
Though criticized for secrecy, it played a key role in stabilizing India’s economy in 1991.
✅ In short: This Act was India’s lifeline during the 1991 crisis, attracting NRI money by offering confidentiality, immunity, and tax-free status.
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