Foreign exchange management act (FEMA), 1999

FOREIGN EXCHANGE MANAGEMENT ACT (FEMA), 1999

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HISTORICAL BACKGROUND 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).


FOREIGN EXCHANGE MANAGEMENT ACT

(FEMA),1999

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.


OBJECTIVES 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.


FEATURES 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.

NEED FOR THIS MANAGEMENT

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.

TO WHOM IT IS APPLICABLE

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.


SWITCH FROM FERA TO FEMA

Liberal Form of FERA.

Extends of whole of India.

It is more human & natural.

Removes restrictions on drawal of foreign exchange.


Fera femaObjective is to conserve FOREX and

to prevent its misuseObjective 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 FEMADefinitions Current A/c not

definedCurrent 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


SIMILARITIES BETWEEN FERA & FEMA

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.


RULES & REGULATIONS UNDER FEMA 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


RULES & REGULATIONS UNDER FEMA

PRESENTED BY:TheYoungIndianEconomists

Foreign exchange management act (FEMA), 1999

Economy & Finance

Transcript of Foreign exchange management act (FEMA), 1999