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Published by: Vishwak Sena Reddy on Feb 14, 2011
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Comparison of FERA & FEMA

To amend the law regulating certain payments, dealings in foreign exchange, effecting foreign exchange and import and export of currency, for the conservation of the foreign exchange resource of the country and the proper utilization thereof in the interests of the economic development of the country.

FERA  Regulated in India by the Foreign Exchange Regulation Act (FERA).1973.  Consisted of 91 sections. .  FERA Emphasized strict exchange control.  Aimed at minimizing dealings in foreign exchange and foreign securities. relating to foreign exchange  Law violators were treated as criminal offenders.  Control everything that was specified.

 FERA therefore proceeded on the presumption that all foreign exchange earned by Indian residents rightfully belonged to the Government of India and had to be collected and surrendered to the Reserve bank of India (RBI). . except one¶s permitted by RBI.  FERA primarily prohibited all transactions. Forex being a scarce commodity.Why FERA?  FERA was introduced at a time when foreign exchange (Forex) reserves of the country were low.

.Objectives  To regulate certain payments. indirectly affecting foreign exchange.  To regulate the import and export of currency.  To conserve precious foreign exchange.  To regulate dealings in foreign exchange and securities.  The proper utilization of foreign exchange so as to promote the economic development of the country.  To regulate transactions.

. ‡ Foreign Exchange Management Act or in short (FEMA) is an act that provides guidelines for the free flow of foreign exchange in India.FOREIGN EXCHANGE MANAGEMENT.1999[FEMA ‡ FEMA is an act to consolidate and among the law relating to Foreign Exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of Foreign exchange market in India .

of immovable property in India by NRI s. ‡ To regulate Foreign companies. ‡ To regulate certain payments. ‡ To regulate employment of foreign nationals. ‡ To regulates dealing in FE and securities.The Objectives are as follows ‡ To regulate impact and export of currency ‡ To regulate acquisition holding etc . . ‡ To regulate the transactions indirectly affecting FE. ‡ To regulate holding of property (immovable) outside India. ‡ To converse the FE resources of the country and to utilize the same is the interest of the economic development of the country.

STRUCTURE OF THE FEMA (ACT) ‡ FEMA has in all 49 sections of which 9 (section 1 to 9) are substantive and the rest are procedural/administrative. ‡ Thus RBI is entrusted with the administration and implementation of FEMA .

The FEMA act extends to the whole of India. The main provision of the Act are as follows: Section 2: Clarity on several definitions and terms used in the context of foreign exchange. Section 3:Prohibits dealing in Foreign Exchange Section 4 Holding of foreign Exchange Section 5 Current account Transaction Section 6 : Capital account Transaction Section 7: Export of Goods and Services Section 8 : Realisation of Repatriation and Foreign Exchange .

9 million . Used foreign exchange meant for production work to meet personal expenses 2. Paid Spectrum Entertainment just $ 4.Case study: Kites Allegations: 1.3 million against pending bills of $ 5. Carried junk film reels from India for the shoot but used fresh reels bought in the US 3.

60 crore ‡ Sold for Rs. Mexico and the US ‡ Spectrum Entertainment hired by Roshan to manage all outdoor shoots of Kites in the US ‡ Reels were bought in US and cost Roshan Rs.Background of case ‡ Production budget of Rs. 110 crore in worldwide rights to the Reliance Group ‡ Film shot in Maldives. 50 lakhs .

Spectrum has all the challans of withdrawals by Roshan . when returned to India 3.evaluation 1. bought from US. Evaded duty on Reels. The production house is gaining tax benefits showing personnel expenditure as creative expenses 2.

must only invite minimal penalty of 3 times the duty evaded 2.conclusions 1. The Spectrum matter will not be taken up by the ED without a proper evaluation of the situation between the complainant & the Indian production house . 50 lakhs in US is violation of FEMA and can invite penalty of upto 3 times the original amount applicable 3. The personal expense. if proved. Spending of Rs.

or banned/ prescribed magazines.Rule 3 read with Schedule I: Prohibited Transactions ‡ Pymt for travel to Nepal and/or Bhutan ‡ Remittance out of income from :. football pools. or racing/riding etc. ‡ Remittance for purchase of :. or any other hobby. on exports made towards equity investment in JV abroad of Indian Companies ..lottery tickets. ‡ Pymt of comm.lottery winnings. sweepstakes etc.

000 (no restriction if pymt made by International /National/ State level Sports Bodies) ‡ Pymt for health insurance from a company abroad .00. Deptt. or a PSU on CIF basis ‡ Cultural Tours ‡ Remittance of prize money/ sponsorship of sports activity abroad > US$ 1.Rule 4 read with Schedule II: Transactions with CG Approval ‡ Pymt of imports by a Govt.

Rule 5 read with Schedule III: (if beyond limits) .

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 .

Comparison FERA & FEMA Differences Emphasis FERA On regulation of foreign exchange FEMA On management of foreign exchange Situation Stringent controls were required on the use of foreign exchange Stringent controls are not required now Permission Need to take permission of RBI No need for seeking the in connection with permission of RBI except in remittances case of Section 3 Restrictions on drawals of foreign exchange for the purpose current account transactions Section 5 removes all restrictions on drawals of foreign exchange Restrictions .

off shore banking Units etc. Now the criteria of WITH "In India for 182 days" to make a person resident has been brought under FEMA. are in consistent with income Tax Act. person. but vice-a-versa may not hold true. money changes. service etc. . OF Definition of "Authorized Person" in FERA was a The definition of Authorized person has been widened to include narrow one ( 2(b) banks. 1961 will also be considered a non-resident for the purposes of application of FEMA. in AS "Resident". DEFINITION AUTHORIZED PERSON MEANING "RESIDENT" COMPARED OF There was a big difference in the definition of The provision of FEMA. current Terms like Capital Account Transaction. have been defined in detail in not defined in FERA. Therefore a person who qualifies to be a non-resident under the income Tax Act. and Income Tax Act respect to the definition of term " Resident". complex FEATURES Presumption of negative intention (Mens Rea ) These presumptions of Mens Rea and abatement have been and joining hands in offence (abatement) excluded in FEMA existed in FERA NEW FEMA TERMS IN Terms like Capital Account Transaction.Comparison FERA & FEMA DIFFERENCES PROVISIONS FERA FEMA FERA consisted of 91 sections. under FERA. (2 ( c ) INCOME TAX ACT. FEMA. and consist of only 49 sections. and was more FEMA is much simple. were Transaction person.. service etc. current account Account Transaction.

35) RIGHT DURING PROCEEDINGS. APPEAL An appeal against the order of "Adjudicating office". The appellate authority under FEMA is the special before " Foreign Exchange Regulation Appellate Board Director ( Appeals) Appeal against the order of went before High Court Adjudicating Authorities and special Director (appeals) lies before "Appellate Tribunal for Foreign Exchange.18. considerably decreased to three times the amount involved. the offence is considered to be a civil punishable with imprisonment as per code of criminal offence only punishable with some amount of procedure. 1973 money as a penalty. was nearly Under FEMA the quantum of penalty has been the five times the amount involved. The monetary penalty payable under FERA. Imprisonment is prescribed only when one fails to pay the penalty. QUANTUM OF PENALTY. (sec 17. Here.Comparison FERA & FEMA PUNISHMENT Any offence under FERA." An appeal from an order of Appellate Tribunal would lie to the High Court. was a criminal offence . OF ASSISTANCE FERA did not contain any express provision on the right FEMA expressly recognizes the right of appellant LEGAL of on impleaded person to take legal assistance to take assistance of legal practitioner or chartered accountant (32) POWER OF SEARCH AND FERA conferred wide powers on a police officer not The scope and power of search and seizure has SEIZE below the rank of a Deputy Superintendent of Police to been curtailed to a great extent make a search .


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