What is FEMA?

It is a set of regulations that empowers the Reserve Bank of India to pass regulations and
enables the Government of India to pass rules relating to foreign exchange in tune with the
foreign trade policy of India.

Which Act did FEMA replace?

FEMA replaced an act called Foreign Exchange Regulation Act (FERA).

What is FERA and when was it passed?

FERA (Foreign Exchange Regulation Act) legislation was passed in 1973. It came into effect on
January 1, 1974. FERA was passed to regulate the financial transactions concerning foreign
exchange and securities. FERA was introduced when the Forex reserves of the country were very
low.

Why was FERA replaced?

FERA did not comply with the post-liberalization policies of the Government.

What is the main change brought in FEMA compared to FERA?

It made all the criminal offences as civil offences.

Main Features of Foreign Exchange Management Act, 1999

1. It gives powers to the Central Government to regulate the flow of payments to and from a
person situated outside the country.
2. All financial transactions concerning foreign securities or exchange cannot be carried out
without the approval of FEMA. All transactions must be carried out through “Authorised
Persons.”
3. In the general interest of the public, the Government of India can restrict an authorized
individual from carrying out foreign exchange deals within the current account.
4. Empowers RBI to place restrictions on transactions from capital Account even if it is
carried out via an authorized individual.
5. As per this act, Indians residing in India, have the permission to conduct a foreign
exchange, foreign security transactions or the right to hold or own immovable property in
a foreign country in case security, property, or currency was acquired, or owned when the
individual was based outside of the country, or when they inherit the property from
individual staying outside the country.

Categories of Authorised Persons under FEMA

Category Authorized Dealer – Authorized Dealer Authorized Full Fledged Money

Category I Category – II Dealer Changers
Category – III

Entities 1.Commercial Banks 1. Upgraded FFMC 1. Select 1. Department of Post

2.State Co-operative 2. Co-operative Banks Financial and 2.Urban Co-operative
Banks other Institutions Banks
3. Regional Rural Banks
3.Urban Co-operative (RRB’s), others 3. Other FFMC
Banks
 Activities As per RBI All activities permitted Foreign Purchase of foreign
Permitted guidelines, all current to FFMC and specified exchange, exchange and sale for
and capital account non-trade related current transactions private and business
transactions account transactions related visits abroad
Structure of FEMA.

1. The Head Office of FEMA, also known as Enforcement Directorate, headed by the
Director is located in New Delhi.
2. There are 5 zonal offices in Delhi, Mumbai, Kolkata, Chennai, and Jalandhar, each office
is headed by Deputy Director.
3. Every 5 zones are further divided into 7 sub-zonal offices headed by Assistant Directors
and 5 field units headed by Chief Enforcement Officers.

Frequently Asked Questions related to FEMA

Is FEMA in force in India?

FEMA stands for ‘ Foreign Exchange Management Act ’, an official Act that consolidates and
amends laws regulating foreign exchange in India. FEMA was enacted by the Parliament of India
in the winter session of 1999 to replace the Foreign Exchange Regulation Act (FERA) of 1973.
The RBI proposed FEMA in 1999 to administrate foreign trade and exchange transactions. The
Foreign Exchange Management Act officially came into force on 1st June 2000.

What is the importance of FEMA?

The main objective of FEMA was to help facilitate external trade and payments in India. It was
also meant to help orderly development and maintenance of foreign exchange market in India. It
defines the procedures, formalities, dealings of all foreign exchange transactions in India.

Where is FEMA applicable in India?

FEMA (Foreign Exchange Management Act) is applicable to the whole of India and equally
applicable to the agencies and offices located outside India (which are owned or managed by an
Indian Citizen). The head office of FEMA is situated at New Delhi and known as the Enforcement
Directorate.

What are the features of FEMA?

FEMA gives power to the central government for imposing restrictions on activities like making
payments to a person situated outside of the country or receiving money through them. Apart
from this, foreign exchange as well as foreign security deals are also restricted by FEMA.

What is the penalty for violation of FEMA Act?

Under Fema, the adjudicator (an officer with the ED) can impose a penalty three times the size of
the contravention involved where the sum is quantifiable. In case the contravention is not
quantifiable, the penalty is set at Rs 2 lakh. Further, where the violation is a continuing one, an
additional penalty of Rs 5,000 per day of contravention can be imposed.
How is FEMA better than FERA?
FERA is an act promulgated, to regulate payments and foreign exchange in India.FEMA is an act
initiated to facilitate external trade and payments and to promote orderly management of the
forex market in the country.