1.What are Foreign Exchange Assets and Specified Assets?

As per Section 115C of Indian Income Tax Act, 1961 Foreign Exchange Asset means any Specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible Foreign exchange.
Specified Asset means any of the following assets, namely:

• shares in an Indian company;
• debentures issued by an Indian company which is not private company as defined in Companies Act, 1956;
• deposits with an Indian company which is not private company as defined in Companies Act, 1956;
• any security of the Central Government as defined in clause (2) of section 2 of the Public Debt Act, 1944;
• such other assets as the Central Government may specify in this behalf by notification in the Official Gazette.

Foreign Exchange for the purpose of the above means foreign exchange, which is for time being treated by Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973(46 of 1973), and any rules made thereunder.

2.Whether Right Shares and Bonus Shares form part of Foreign Exchange Assets?

RBI notification is silent on the issue of bonus shares and right entitlements. In the case of bonus shares, one can safely take the view that if the bonus shares are allotted as a result of shares for which payment is made by the way of inward remittance in foreign currency or by debit to NRE / FCNR account they would be treated as foreign Exchange Assets. Though nothing specific has been mentioned regarding the right entitlement, one can apply the analogy of bonus shares to right entitlements also. If payment for the original shares has been made by the way of inward remittance in foreign currency or by debit to NRE/ FCNR Account they would be treated as foreign exchange assets.