Foreign Exchange Management Act (FEMA)

All about FEMA and related aspects

1. Foreign Exchange Management Act ( FEMA) .

2. FOREIGN EXCHANGE MANAGEMENT ACT, 1999 The Foreign Exchange Management Act (1999) or in short FEMA has been introduced as a replacement for earlier Foreign Exchange Regulation Act (FERA). FEMA came into act on the 1st day of June, 2000. An Act to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments

3. Applicability It is applicable to whole of India . The act is also applicable to all branches, offices and agencies outside India owned or controlled by a person who is resident of India.

4. Reasons contributing to enactment of FEMA. Liberal EXIM Policy Increased inflow of foreign investment Foreign exchange reserves had increased Commitment of government to WTO Penalty provisions of FERA were very strict

5. Features Dealing in foreign exchange. Full freedom to person resident in India to hold or transfer any foreign securities or immovable property situated outside India. A person resident outside India is also permitted to hold shares, securities and property acquired by him while he was resident in India. Directorate of Enforcement.

6. Objectives Of FEMA To facilitate the external trade and payment. To promote an orderly development and maintenance of the foreign exchange market in India. Regulation of foreign capital in India. To regulate employment business and investment of non-residents.

7. R egulators involved in FEMA Reserve Bank of India (RBI) Ministry of Industry, Government of India Ministry of Finance, Government of India Directorate of Enforcement

8. Current account transactions Section 2 (j) of FEMA defines “Current account transaction” as a transaction other than a capital account transaction and includes ,- ( i ) Payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business, (ii) Payments due as interest on loans and as net income from investments, (iii) Remittances for living expenses of parents, spouse and children residing abroad, and (iv) Expenses in connection with foreign travel, education and medical care of parents, spouse and children

9. Capital Account Transactions Any person may sell or draw foreign exchange to or from an authorized person for a capital account transaction permitted by RBI in consultation with central Government . RBI prohibits, restricts or regulate the following , (a) Transfer or issue of any foreign security by a person resident in India (b) Transfer or issue of any foreign security by a person resident outside India (c) Transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India (d) Any borrowing or lending in foreign exchange in whatever form or by whatever name called

10. Difference between FEMA and FERA Points of Comparison FEMA-1999 FERA1973 Content There are 49 sections out of which 12 section relate to operational part and rest with penal provisions. There were 81 sections out of which 32 sections related to operational part and rest deals with penalty, appeals etc Nature Basically it is a civil law. It was considered as a criminal law. Applicability The Act applies to all branches, offices and branches outside India owned or controlled by a person resident in India The Act applied to all citizens of India and to branches and agencies outsides India and to branches and agencies outside India .

11. . 4. New Terms Capital account transactions, current account transactions, pers ons, services like new terms are introduced. These terms were not defined. Penalty Limited to three times the sum involved if it is quantifiable Five times at the sum involved+ imprisonment in most of the cases. Object The object is to encourage external trade. The object was to control, regulate and prohibits foreign exchange transactions. 7. Legal Help The complainant has a full right to take legal help from a lawyer or a chartered accountant. There was no provision for legal assistance. Definition of ‘ authorised person ’ It has been extended to include banks, money changes etc It was limited in case of FERA

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