The new Foreign Exchange Management Act (FEMA) was replaced to the Foreign Exchange

Regulation Act, 1973 (FERA). FEMA was ultimately passed by Parliament in 1999and now, it
has been notified that FEMA has come into force from 1st June 2000.

FERA was introduced at a time when foreign exchange (forex) reserves of the country were low,
forex being a scarce commodity. 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) expeditiously. It regulated not
only transactions in forex, but also all financial transactions with non-residents. FERA primarily
prohibited all transactions, except to the extent permitted by general or specific permission by
RBI.

Violation of FERA was a criminal offence. The case of the eminent industrialist, S.L.Kirloskar,
being proceeded against under FERA for having the princely amount of $82 in his possession is
well known. If you had ever visited a relative abroad, or had non-resident relatives visiting you,
the chances are high that you had also violated FERA. In such cases, it is highly likely that your
relatives may have given you or your visiting family members some small gift in forex, which
you spent on buying some small article which you wanted to bring back. Or you may have spent
some money on hospitality towards your non-resident relatives visiting you. Strictly, speaking,
till the 1990's, these were FERA violations.

Fortunately, with the winds of liberalization blowing in the early 1990's, the Government relaxed
many of the rigours of FERA by issuing notifications. Forex reserves swelled, the rupee was
made convertible on current account. In this liberal atmosphere, the government realized that
possession of forex could no longer be regarded as a crime, but was an economic offence, for
which the more appropriate punishment was a penalty. Thus, the need of FEMA was felt. The
primary difference between FERA and FEMA therefore lies in the fact that offences under
FEMA are not regarded as criminal offences and only invite penalties, not prosecution and
imprisonment.

FEMA now codifies in the legislation and rules itself various transactions, which had been
permitted by notification under FERA. Under FEMA, all current account transactions in forex
 (such as expenses, which are not for capital purposes) are permitted, except to the extent that the
Central Government notifies. However, so far as capital account transactions are concerned, all
capital account transactions in forex are prohibited, except to the extent as may be notified by
RBI.

Certain prohibitions are laid down in the Foreign Exchange Management (Current Account
Transactions) Rules, 2000. You cannot remit money for purchase of lottery tickets, for
subscription to banned/prescribed magazines, to football pools, sweepstakes, for payment for
telephone callback services, etc. Under the rules, certain remittances can be made only with prior
approval of RBI. Many of these require permission only if the spending exceeds a particular
limit. In effect, this means that you can spend amounts less than that without any approval being
required. Some of these remittances, not requiring approval, are:

1. Up to US $ 5,000 in every calendar year for foreign travel (increased from the limit of US $ 3,000
under FERA).

2. Up to US $ 25,000 per trip for a business trip or for attending a conference abroad, irrespective of
the length of the trip (under FERA, you had limits per day plus an entertainment allowance).

3. For gifts up to US $ 5,000 per beneficiary per annum (under FERA, the limit was US $ 1,000 and
restricted only to defined relatives).

4. For donations up to US $ 5,000 per beneficiary.

5. For maintenance of close relatives abroad up to US $ 5,000 per recipient.

6. For foreign studies up to US $ 30,000, or the estimate from the foreign institution, whichever is
higher.

7. For meeting expenses for medical treatment abroad, up to the estimate from doctor in India or
hospital or doctor abroad.
There do not seem to be any restrictions on payments to be made in forex for various sundry
expenses, such as purchase of books or software for your own use, for which there were certain
limits under FERA.

The amount to rearin in form og gifts or foreign product is up to US $ 2,000 in forex even after
your return to India, besides any amount of coins can be kept.

Of course, since capital account transactions are still prohibited (except to the extent permitted),
one still cannot invest one’s funds in overseas investments (unless he is an employee of a foreign
company or its subsidiary and have been offered stock options in the foreign company).