FOREIGN EXCHANGE MANAGEMENT

ACT, 1999

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• Objectives
To facilitate external trade and payments
To promote the orderly development and
maintenance of foreign exchange market

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• Introduction: -
 Foreign exchange transactions were regulated by
Foreign exchange regulation act (FERA), 1973
 Following the liberalization ushered in 1991 some
amendments were made to FERA in 1993 there was
a lot demand to bring certain major changes in FERA
in the light of economic changes took place
 Consequently a new act was formed to replace FERA,
known as Foreign exchange management act
(FEMA), 1999

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• Capital account transaction means a
transaction which alters the assets or
liabilities, including contingent liabilities,
outside India of persons resident in India or
assets or liabilities in India of persons resident
outside India, and includes transactions
referred to in sub-section (3) of section 6

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• Current account transaction means a
transaction other than a capital account
transaction.
• Security means shares, stocks, bonds and
debentures, Government securities as defined
in the Public Debt Act, 1944

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• Foreign exchange means foreign currency and
includes:
• deposits, credits and balances payable in any
foreign currency,
• drafts, travellers cheques, letters of credit or bills
of exchange, expressed or drawn in Indian
currency but payable in any foreign currency
• drafts, travellers cheques, letters of credit or bills
of exchange drawn by banks, institutions or
persons outside India, but payable in Indian
currency
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 Section 3 of FEMA
• It talks about dealings in foreign exchange and foreign
securities and payments to and receipts from any person
outside India.
• The general or special permission of the Reserve Bank of
India is required in the following matters
(a) Dealing in any foreign exchange or foreign security with any
person other than the authorized person
(b) Payment to or for the credit of any person resident outside
India in any manner
(c) Receiving of any payment by order or on behalf of any
person resident outside India in any manner otherwise
through an authorized person
(d)Enter in to any financial transaction in India as a
consideration for or in association with requisition or
creation or transfer of a right to acquire any asset outside
India by any person
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Holding of Foreign Exchange:-
• No person resident in India shall acquire, hold, own,
possess or transfer any foreign exchange/foreign
security or any immovable property situated
outside India
Current account Transactions:-
• Act permits dealing in foreign exchange through
authorized persons for current account
transactions.
• Central Government can impose reasonable
restrictions in public interest with this regard

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 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:

1. Transfer or issue of any foreign security by a person
resident in India
2. Transfer or issue of any foreign security by a person
resident outside India
3. Transfer or issue of any security or foreign security by any
branch, office or agency in India of a person resident
outside India
4. Any borrowing or lending in foreign exchange in whatever
form or by whatever name known.

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5. Any borrowing or lending in rupees in whatever form or whatever name
called between a person resident in India and a person resident outside
India;
6. Deposits between persons resident in India and a person resident
outside India
7. Export, Import or holding of currency or currency notes
8. Transfer of immovable property outside India other than a lease not
exceeding five years by a person resident outside India
9. Acquisition or transfer of immovable property in India other than a
lease not exceeding five years by a person resident outside India
10. Giving of guarantee or surety in respect of any debt obligation or the
liability
a. By a person resident in India and owed to a person resident outside India
or
b. By a person resident outside India

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 Export of goods and services
Every exporter of goods shall furnish to the RBI or to such other authority the
following

(a)A declaration specified

1. True and correct material particulars
2. Amount representing the value of full export of goods
3. The time of the export
4. The value which exporter having regard to the prevailing market
conditions expects to receive on the sale of the goods in a market outside
India

(b) Other information

-That may be required by RBI for the purpose of ensuring the realization of
the export proceeds by such exporter
- Every exporter of the services shall furnish to the RBI or to such other
authorities a declaration as specified, containing the true and correct
material particulars in relation to the payment for such services
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Realization and Repatriation of foreign exchange:-
Any person in this concern shall have to follow the reasonable
steps to realize and repatriate it to India with or with in the
time in the manner prescribed by the act

Contravention and penalties:-

• For any kind of contravention under this act defaulter is
liable to pay up to thrice the amount involved where it is
quantifiable,or Up to Rs. 2 lakhs where not quantifiable
• If such contravention is continued further, penalty may
extend to Rs. 5,000 for every day after the first day

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 FERA V/s FEMA:-
1. In FEMA only the specified acts related to foreign exchange
are regulated while in FERA anything and everything that
has to do with foreign exchange was controlled

2. The objective of FEMA is to facilitate trade while that of

FERA is to prevent misuse

1. FEMA is a much smaller enactment only 49 sections against

81 sections of FERA

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