Foreign exchange management act (FEMA), 1999

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 The Foreign Exchange Regulation Act (FERA)
of 1973 enacted in 1973
 In the backdrop of acute shortage of foreign
exchange in the country
 FERA had a controversial 27 year stint during
which many bosses of the Indian corporate
world found themselves at the mercy of the
Enforcement Directorate (E.D).

 The FEMA (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
 49 sections in the Act.

 To consolidate & amend the law relating to foreign
exchange.
 To facilitating external trade & payments.
 To remove imbalance of payment.
 To make strong & developed foreign exchange market.
 Regulation of employment business & investment of
non-residents.

 Activities such as payments made to any person outside
India or receipts from them, along with the deals in
foreign exchange and foreign security is restricted. It is
FEMA that gives the Central Government the power to
impose the restrictions
 Restrictions are imposed on residents of India who carry
out transactions in foreign exchange, foreign security or
who own or hold immovable property abroad
 Without general or specific permission of the MA
restricts the transactions involving foreign exchange or
foreign security and payments from outside the country to
India – the transactions should be made only through an
authorized person.

 Deals in foreign exchange under the current account by an
authorized person can be restricted by the Central
Government, based on public interest generally.
 Although selling or drawing of foreign exchange is done
through an authorized person, the RBI is empowered by
this Act to subject the capital account transactions to a
number of restrictions.
 Residents of India will be permitted to carry out
transactions in foreign exchange, foreign security or to
own or hold immovable property abroad if the currency,
security or property was owned or acquired when he/she
was living outside India, or when it was inherited by
him/her from someone living outside India.
 Exporters are needed to furnish their export details to RBI.
To ensure that the transactions are carried out properly,
RBI may ask the exporters to comply to its necessary
requirements.

 The buying and selling of foreign currency and other debt
instruments by businesses, individuals and governments
happens in the foreign exchange market
 Largest and most liquid market in the world as well as in
India
 The management of foreign exchange market becomes
necessary in order to mitigate and avoid the risks.
 Central banks would work towards an orderly functioning
of the transactions which can also develop their foreign
exchange market.

 FEMA is applicable to all parts of India.
 The act is also applicable to all branches, offices &
agencies outside India owned or controlled by a person
who is resident of India.

 Liberal Form of FERA.
 Extends of whole of India.
 It is more human & natural.
 Removes restrictions on drawal of foreign exchange.

Fera fema
Objective is to conserve FOREX and
to prevent its misuse
Objective is to facilitate external trade
and payments and maintenance of
FOREX market in India
Violation of FERA was a criminal
offence
Violation of FEMA is a civil offence
Offences under FERA were not
compoundable
Offences under FEMA are
compoundable
Citizenship was a criteria to
determine the residential status of a
person under FERA
Stay of more than 182 days in India is
the criteria to decide residential status
under FEMA.

DIFFRENCES FERA FEMA
Definitions Current A/c not
defined
Current a/c, service all
defined
2.Provisions Complex 81 Sec Simple 49 Sec
3.Authorised Person Narrow Definition Has been widened to
include banks
4. Compatibility with
IT
Not dealt Considers resident in
India similar to IT
5. Right of Assistance No help allowed Sec 32 gives right to
help of legal
practitioner

 The Reserve Bank of India and central
government would continue to be the
regulatory bodies.
 Presumption of extra territorial jurisdiction as
envisaged in section (1) of FERA has been
retained.
 The Directorate of Enforcement continues to
be the agency for enforcement of the
provisions of the law such as conducting search
and seizure.

 Current Account Transactions Rules, 2000
 Permissible Capital Account Transactions
Regulations,2000
 Transfer or Issue of any Foreign Security regulations,
2004
 Foreign currency accounts by a person resident in India
Regulations,2000
 Acquisition and transfer of immovable property in India
regulations,2000
 Establishment in India of branch or office or other place
of business regulations, 2000
 Manner of Receipt and Payment Regulations, 2000

 Export of Goods and Services regulations,
2000
 Realization, repatriation and surrender of
Foreign Exchange regulations, 2000
 Possession and Retention of Foreign Currency
Regulations, 2000
 Foreign Exchange (compounding proceedings)
rules, 2000

Foreign exchange management act (FEMA), 1999

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