FOREIGN EXCHANGE MANAGEMENT ACT,1999

Objective of FEMA : (i) Facilitating external trade and payments and

(ii) Promoting the orderly development and maintenance of foreign exchange market in India

Balance of payments :

*India attracts foreign direct investments through imports

*But those foreign direct investments will come in foreign currency
*RBI hold certain ratio of foreign exchange reserves and the surplus reserves is intended to be invested *So
RBI through government provides many incentive to promote exports *And
hence the Indian person will do overseas direct investments through exports *But
the main problem is overseas direct investments are to be made in foreign currency but such Indian person don't have foreign
currency instead he have domestic Indian currency *So here RBI plays
an important role by dealing itself with Indian person by transacting foreign currencies in exchange of Indian currency so this is
known as balance of payments

"CURRENCY" INCLUDES ALL CURRENCY NOTES, POSTAL NOTES, POSTAL ORDERS, MONEY ORDERS, CHEQUES, DRAFTS,
TRAVELLERS CHEQUES, LETTERS OF CREDIT, BILLS OF EXCHANGE AND PROMISSORY NOTES, CREDIT CARDS

"INDIAN CURRENCY" MEANS CURRENCY WHICH IS EXPRESSED OR DRAWN IN INDIAN RUPEES BUT DOES NOT INCLUDE SPECIAL
BANK NOTES AND SPECIAL ONE RUPEE NOTES

"FOREIGN CURRENCY" MEANS ANY CURRENCY OTHER THAN INDIAN CURRENCY

Foreign Exchange
"FOREIGN EXCHANGE" MEANS FOREIGN CURRENCY AND INCLUDES,-

*DEPOSITS, CREDITS AND BALANCES PAYABLE IN ANY FOREIGN CURRENCY

*DRAFTS, TRAVELLERS CHEQUES, LETTERS OF CREDIT OR BILLS OF EXCHANGE, EXPRESSED OR DRAWN IN INDIAN CURRENCY
BUT PAYABLE IN ANY FOREIGN CURRENCY

*DRAFTS, TRAVELLERS CHEQUES, LETTERS OF CREDIT OR BILLS OF EXCHANGE DRAWN BY BANKS, INSTITUTIONS OR PERSONS
OUTSIDE INDIA, BUT PAYABLE IN INDIAN CURRENCY

"SECURITY" means shares, stocks, bonds, debentures, Government Savings Certificates, deposit receipts, units of the Unit Trust
of India, Government promissory notes or any other instruments issued by government

"FOREIGN SECURITY" means any security * DENOMINATED OR EXPRESSED IN FOREIGN CURRENCY and

* includes securities expressed in foreign currency but redemption

or any form of return such as interest or dividends is payable in Indian

currency

"Person" includes: individual, Hindu undivided family, company, firm, AOP or BOI, artificial juridical person, any agency, office or
branch owned or controlled by such above persons

THREE PURPOSES :
*For taking up employment
*For carrying on any business or
*For any other purpose where the period of his stay out of India would be uncertain.

Person Resident in India (PRII) :

A person shall be treated as PRII if (i) he reside in india for more than 182 days and hasn't gone outside india during

the current year

(ii) he reside for more than 182 days and has gone outside india during the

current year for other than 3 purposes

(iii) he hasn't resided for more than 182 days but has come to india during the

current year for the 3 purposes

(iv) Any person or body corporate incorporated in India,

(iii) an office, branch or agency in India owned or controlled by a person resident

outside India

(iv) an office, branch or agency outside India owned or controlled by a person

resident in India

"PERSON RESIDENT OUTSIDE INDIA(PROI)" MEANS A PERSON WHO IS NOT A PRII

Note : (i) Citizenship is NOT relevant for determining residential status under FEMA.

(ii) Where a person comes to India for one of the three purposes, he will be considered a PRII from the date of arrival
in India.

Dealing in foreign exchange : Unless otherwise provided in this Act, rules or regulations made thereunder, or with the
general or special permission of the Reserve Bank, no person shall-

(a) deal in or transfer any foreign exchange or foreign security to any person not being an authorised person(Banks & money
changers)

(b) make any payment to or for the credit of any person resident outside India in any manner

(c) receive other than through an authorised person, any payment by order or on behalf of any PROI in any manner

(d) enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a
right to acquire any asset outside India by any person

Holding of foreign exchange : FEMA prevents Indian residents from acquiring, holding, owning, Possessing or transfering
any foreign exchange, foreign security or immovable property in abroad

The main operating principle is: The funds belong to the Person but the FOREX belongs to the Govt., of India.

Capital account transactions :- Capital Account Transaction means any transaction which alters Assets Or Liabilities IN
INDIA by a PRII or OUTSIDE INDIA by a PROI

Current Account Transactions :- CURRENT ACCOUNT TRANSACTION means a TRANSACTION OTHER THAN A CAPITAL

ACCOUNT TRANSACTION and without prejudice to the generality of the foregoing such transaction includes,-

(i) payments due in connection with foreign trade, other current business, services, and short-term banking and credit
facilities in the ordinary course of business
(ii) payments due as interest on loans and as net income from investments
(iii) remittances for living expenses of parents, spouse and children residing abroad, and
(iv) expenses in connection with foreign travel, education and medical care of parents, spouse and children;

A GENERAL PRINCIPLE

*CURRENT ACCOUNT TRANSACTIONS ARE FREELY PERMITTED UNLESS SPECIFICALLY PROHIBITED

*CAPITAL ACCOUNT TRANSACTIONS ARE PROHIBITED UNLESS SPECIFICALLY PERMITTED

Any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account
transaction but however the Central Government may, in public interest and in consultation with the RBI, impose some
restrictions for current account transactions

Any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction in accordance
with the regulations made by the Reserve Bank may, in consultation with the Central Government

CAPITAL ACCOUNT TRANSACTIONS THAT ARE SPECIFICALLY PERMITTED :

(i) Debt instruments

(ii) The limit up to which foreign exchange shall be admissible

Exception: Drawal of foreign exchange for payment due on account of amortisation of loans or for depreciation of direct
investments in the ordinary course of business

Prohibited Capital Account Transactions

A PROI is prohibitted from from making investments in India *In Chit fund Business *In agricultural or plantation activities
*In real estate business, or construction of farm houses *As Nidhi company *In
trading in Transferable Development Rights (TDRs)

No person shall undertake or sell or draw foreign exchange to or from an Authorised person for any capital account transaction
except :- a resident individual may, draw from an authorized person , FOREX not exceeding USD 250,000 per financial year or
such amount as decided by Reserve Bank from time to time for a capital account transaction specified in Schedule I

Where the drawal under this head exceeds the LRS limit, then further drawals even for Current Account Transactions require
approval

Transactions for which drawal of foreign exchange is prohibited: Schedule I

(i)Remittance out of lottery winnings

(ii)Remittance of income from racing/riding, etc., or any other hobby

(iii)Remittance for purchase of lottery tickets, banned/proscribed magazines, football pools, sweepstakes etc.
(iv)Remittance of interest income on funds held in Non-resident Special Rupee Scheme a/c.

(v)Remittance of dividend by any company to which the requirement of dividend balancing is applicable

(vi)Payment related to "Call Back Services" of telephones

(vii)Payment of commission on exports made towards equity investment in Joint Ventures/Wholly Owned Subsidiaries abroad of
Indian companies

(viii)Payment of commission on exports under Rupee State Credit Route, except commission up to 10% of invoice value of
exports of tea and tobacco

Transactions, which require prior approval of the Government India for drawal of foreign exchange:
Schedule Il

1) PURPOSE : Cultural Tours

APPROVAL : Ministry of Human Resources Development (Department of Education and Culture)

2) PURPOSE : Remittance of freight of vessel charted by a PSU

APPROVAL : Ministry of Surface Transport (Chartering Wing)

3) PURPOSE : Multi-modal transport operators making remittance to their agents abroad

APPROVAL : Registration Certificate from the Director General of Shipping

4) PURPOSE : Remittance of hiring charges of transponders by (a) TV Channels b) Internet service providers

APPROVAL : Ministry of Information and Broadcasting & Ministry of Communication and Information Technology

5) PURPOSE : Payment of import through ocean transport by a Govt. Department or a PSU on c.i.f. basis (i.e., other

than f.o.b. and f.a.s. basis)

APPROVAL : Ministry of Surface Transport (Chartering Wing)

6) PURPOSE : Remittance of container detention charges exceeding the rate prescribed by Director General of

Shipping

APPROVAL : Ministry of Surface Transport (Director General of Shipping)

7) PURPOSE : Advertisement in foreign print media for the purposes other than promotion of tourism, foreign

investments and international bidding (exceeding US$ 10,000) by a State Government and its Public

Sector Undertakings

8) PURPOSE : Remittance for membership of P & I Club

APPROVAL : Ministry of Finance (Insurance Division)

Approval required even if made out of RFC/EEFC account

9) PURPOSE : Remittance of prize money/sponsorship of Sports activity abroad by a person other than
 International/National/State Level sports bodies, if the amount involved exceeds US $ 100,000

APPROVAL : Ministry of Human Resource Development (Department of Youth Affairs and Sports)

Transactions which require RBI's prior approval for drawal of foreign exchange: Schedule III

A1] NATURE OF REMITANCE (Individual) :

(i) Private visits to any country (except Nepal and Bhutan)
(ii) Gift or donation.
(iii) Going abroad for employment
(iv) Emigration
(v) Maintenance of close relatives abroad
(vi) Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses,
or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up.
(vii) Expenses in connection with medical treatment abroad
(viii) Studies abroad
(ix) Any other current account transaction

LIMIT : UPTO USD 250, 000

* Remittances SHALL BE made through the Liberalised Remittance Scheme, 2000 (LRS)

* Note 1: For the purposes mentioned at item numbers (iv), (vii) and (viii), an individual may avail exchange facility for an
amount in excess of the limit prescribed under LRS if it is so required by a country of emigration, medical institute offering
treatment or the university, respectively

B1] NATURE OF REMITANCE (Other than Individual) :

Donations, for-

a. creation of Chairs in reputed educational institutes,

b. contribution to funds (not being an investment fund) promoted by educational institutes; and c.
contribution to a technical institution or body or association in the field of activity of the donor Company

LIMIT : *UP TO 1% OF THEIR FOREIGN EXCHANGE EARNINGS DURING THE PREVIOUS THREE FINANCIAL YEARS (OR)

*USD 5,000,000,

WHICHEVER IS LOWER

B2] NATURE OF REMITANCE (Other than Individual) :

Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India

LIMIT : * 5% of the inward remittance (OR)

* UPTO USD 25,000

WHICHEVER IS HIGHER

B3] NATURE OF REMITANCE (Other than Individual) :

REMITTANCES FOR ANY CONSULTANCY SERVICES PROCURED FROM OUTSIDE INDIA

LIMIT :* UP TO USD 10,000,000 PER PROJECT IN RESPECT OF INFRASTRUCTURE PROJECTS AND

 * UPTO USD 1,000,000 PER PROJECT, FOR OTHER CONSULTANCY SERVICES

B4] NATURE OF REMITANCE (Other than Individual) :

REMITTANCES BY AN ENTITY IN INDIA BY WAY OF REIMBURSEMENT OF PRE-INCORPORATION EXPENSES

LIMIT : * UP TO 5% OF INVESTMENT BROUGHT INTO INDIA OR

* USD 100,000

WHICHEVER IS HIGHER

a person who is resident but not permanently resident in India and-

(a) is a citizen of a foreign State other than Pakistan; or

(b)is a citizen of India, who is on deputation to the office or branch of a foreign company or subsidiary or joint venture in India
of such foreign company, may make remittance up to his net salary (after deduction of taxes, contribution to provident fund
and other deductions)

WHO IS RESIDENT BUT NOT PERMANENTLY RESIDENT IN INDIA?

Explanation: For the purpose of this item, a person resident in India on account of his employment or deputation of a specified
duration (irrespective of length thereof) or for a specific job or assignments, the duration of which does not exceed three years,
is a resident but not permanently resident.

* IF THE TRANSACTION IS NOT LISTED IN ANY OF THE ABOVE THREE SCHEDULES, IT CAN BE FREELY UNDERTAKEN.
* REMITTANCES MADE FOR THE TRANSACTIONS LISTED IN SCHEDULE II AND SCHEDULE III FROM RFC/ EEFC ACCOUNT, DO
NOT REQUIRE APPROVAL.

IN THE CONTEXT OF CAPITAL ACCOUNT TRANSACTIONS :

* A PRII MAY HOLD, OWN, TRANSFER OR INVEST IN FOREIGN CURRENCY, FOREIGN SECURITY OR ANY IMMOVABLE PROPERTY
SITUATED OUTSIDE INDIA IF THE SAME WAS ACQUIRED, HELD OR OWNED BY SUCH PERSON WHEN HE WAS A PROI OR
INHERITED FROM A PROI

* A PROI MAY HOLD, OWN, TRANSFER OR INVEST IN INDIAN CURRENCY, INDIAN SECURITY OR ANY IMMOVABLE PROPERTY
SITUATED IN INDIA IF THE SAME WAS ACQUIRED, HELD OR OWNED BY SUCH PERSON WHEN HE WAS A PROI OR INHERITED
FROM A PROI