FEMA (FOREIGN EXCHANGE MANAGEMENT ACT

PREPARED BY: GREEN GROUP

MEANING OF FEMA
Foreign exchange transactions were regulated in India by the Foreign Exchange Regulation Act 1973. This also sought to regulate certain aspects of the conduct of business outside the country by Indian companies and in India by Foreign companies. There was a lot of demand for a substantial modification of FERA in the light of the on-going economic liberalization and improving foreign exchange reserve position. Accordingly a new act the FEMA 1991 replaced the FERA.

CONTD MEANING OF FEMA

The

FEMA which came into effect from January 1,2000 extends to the whole of India and also applies to all branches and agencies outside India owned or controlled by a person resident in India.

OBJECTIVES OF FEMA
Various objectives of FEMA are: To facilitate external trade and payment. To promote the orderly development and maintenance of foreign exchange rate.

SCOPE OF FEMA
FEMA provides: Free transactions on current account subject to reasonable restrictions that may be imposed. RBI controls over capital account transactions. Control over realization of export proceeds. Dealing in foreign exchange through authorized persons like authorized dealer/ money changer/ off shore banking units.

CONTD SCOPE OF FEMA

Adjudication

of Offences. Appeal provision including Special Director (Appeals) and Appellate tribunal. Directorate of Enforcement.

DEALING IN FOREIGN EXCHANGE ACT

Section 3 of FEMA imposes restriction on dealing in foreign exchange and foreign security and payment to and receipt from any person outside India. Holding of foreign exchange. Current account transaction. Capital account transaction.

HOLDING OF FOREIGN EXCHANGE

Save as otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange.

CURRENT ACCOUNT TRANSACTIONS

FEMA permits dealing in foreign exchange through authorized person for current account transaction. However, the central government any restrict it in public interest.

Any person may exchange foreignexchange to or from an authorized person for a capital account transaction permitted by RBI. However, without prejudice, RBI may prohibit, restrict or regulate the things listed below. a) Transfer or issue of any foreign security by a person, resident in India. b) Transfer or issue of any security by a person resident outside India.

CAPITAL ACCOUNT TRANSACTION

CONTD CAPITAL ACCOUNT TRANSACTION

(c)Transfer

or issue of any 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 etc.

PROVISIONS OF FEMA
1.

2.
3. 4.

5.
6.

Dealing in Foreign Exchange (section 3). Holding of Foreign Exchange (section 4). Current account transactions (section 5). Capital account transaction (section 6). Export of goods and services (section 7). Realization and repatriation of Foreign Exchange (section 8).

DEALING IN FOREIGN EXCHANGE (SECTION 3)

Section

3 of FEMA imposes restrictions on dealing in foreign exchange and foreign security and payment to and receipts from any person outside India. Accordingly, except as provided in terms of the ACT, or with the general or special permission of the Reserve Bank, no person shall:

CONTD DEALING IN FOREIGN EXCHANGE (SECTION 3)

I.
II.

III.

IV.

Deal in foreign exchange or foreign security with any person other than an authorized person. Make any payment to or for the credit of any person resident outside India in any manner. Receive otherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner. Enter in to any financial transaction in India as a consideration for or in association with acquisition or transfer of a right to acquire, any asset outside India by any person.

HOLDING OF FOREIGN EXCHANGE (SECTION 4)

No person, resident in India, shall acquire, hold ,own, posses or transfer any foreign exchange, foreign security or any immovable property situated outside India, without permission from the reserve bank.

CURRENT ACCOUNT TRANSACTION (SECTION 5)

Any person may sell or draw foreign exchange to or from an authorized person if such sale or drawl is a current account transaction.

CAPITAL ACCOUNT TRANSACTION (SECTION 6)

Any

person may sell or draw foreign exchange to or from an authorized person for a capital account transaction. The RESERVE BANK may, in constitution with the Central Government, specify any class or classes of capital account transactions which are permissible and limit upon which foreign exchange shall be admissible for such transactions.

EXPORT OF GOODS AND SERVICE (SECTION 7)

Every

exporter of goods or services shall furnish to the reserve bank details regarding the export value of such goods or services.

REALIZATION AND REPATRIATION OF FOREIGN EXCHANGE (SECTION 8)

Where

any amount of foreign exchange is due or accrued to any person resident in India, such a person shall take steps to realize and repatriate to India, such foreign exchange within a specified period of time.

CONTRAVENTION AND PENALTIES

Penalty for any kind of contravention under this Act is liable to a penalty up to thrice the amount involved where it is quantifiable or up to Rs 2alkhs where it is not quantifiable and where such contravention is continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues. This provision is in total contrast to the respective provision in the erstwhile FERA which provided for imprisonment and no limit on fine.

ADMINISTRATION OF THE ACT

The FEMA has assigned an important role to the reserve bank of India in the administration of this act. The rules, regulations and norms pertaining to several sections of the Act are to be laid down by the RBI, in consultation with the central government. The Act requires the central government to appoint as many officers of the central government as adjudicating authorities for holding inquiries pertaining to contravention of the act. There is also a provision for appointing one or more special directors (appeals) to hear appeals against the order of the adjudicating authorities.

SALIENT FEATURES OF FEMA

Exchange control regulations have been framed by the RBI, being the exchange control authority of India. Some broad and structural changes were made in Foreign Exchange Regulation Act, FERA 1973, by an ordinate promulgated by the president of India on January 8, 1998. these are as follows: 1. Companies registered under FERA are not required to seek permission for transacting any asset in India. 2. Export and import of gold and silver will now be regulated by EXIM policy in place of FERA.

CONTD SALIENT FEATURES OF FEMA

3. Indian nationals are allowed to hold foreign currencies worth Rs. 15000 with them. 4. For joint enterprises in foreign countries, no permission will be required under FERA. 5. The condition for paying only in foreign countries by non-resident during Indian tour is also abolished. 6. All the restrictions for use of imported gold and silver in the country have been abolished. 7. Exporters and other individuals have been granted permission to take goods to foreign countries for rental or lease purposes.

CONTD SALIENT FEATURES OF FEMA

8. The RBI has granted general permission to NRI/ overseas corporate bodies to make investment in India and non-repatriation basis subject to certain liberalized conditions. 9. Foreigners have been allowed to purchase fixed assets in the country. 10. Extension of facilities to NRIs, Indian companies and Indian nationals for opening bank account dealing in foreign countries.

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