ForeignExchangeManagementAct(FEMA

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Foreign exchange management act, 1999 A Bill based on the recommendations of the Task Force, was introduced in the Lok Sabha on 4 August, 98. The Bill was referred to the standing committee on Finance which submitted it's report to the House on 23 December'98 with suggestion and modifications. The 12th Lok Sabha was dissolved before any decision could be taken on the bill. The Bill subsequently lapsed. The bill was again introduced in the 13th Lok Sabha on 25th Oct'99. The presidential Assent was received on 6th Jan 2000. Finally the FEMA came into operation w.e.f. 1st June 2000. To whom is the act applicable? The FEMA, is applicableTo the whole of India. Any Branch, office and agency, which is situated outside India, but is owned or controlled by a person resident in India.

Categories and status of different persons Broadly speaking FEMA, covers, three different types of categories, and deals differently with them. These categories are: A. Person B. Person Resident In India C. Person Resident Outside India A. Person For the purpose of provisions, a person shall include any of the following: i. ii. iii. iv. v. vi. vii. An individual A Hindu Undivided family A company A Firm An association of persons or a body of individuals, whether incorporated or not, Every artificial judicial person, not falling within any of the preceding sub clauses, and Any agency, office or branch owned or controlled by such person.

B. "Person resident in India" "A person resident in India", shall include any of the following i. A person who has been residing in India for more than 182 days, in the last financial year. This means if a person has to be assessed, as to whether he is person resident in India, for any offence committed in August 2001, then he should be residing in India for more than 182 days during April 2000 to March 2001 Any person or body corporate registered or incorporated in India, or An office, branch or agency in India owned or controlled by a person resident outside India, or An office, branch or agency outside India owned or controlled by a person resident in India.

ii. iii. iv.

However, in following cases a person shall not be person resident in India", even if he is residing in India for more than 182 days in the last financial year: i. • A person who has gone abroad, for : Taking up employment outside India or

bonds. in general or with respect to "Capital Account Transactions. • • • For carrying on any business outside India. outside India of persons resident in India or assets or liabilities in India of persons resident outside India. Giving of a guarantee or surety in respect of any debt. vii. A person resident in India may hold.B. Deposits between persons resident in India and person resident outside India: R. restrict or regulate any of the following: iii. security or property was acquired. Transfer of immovable property outside India.I). obligation or other liability incurred. With respect to " Person Resident in India"." "CAPITAL ACCOUNT TRANSACTIONS" means a transaction. 3. or Carrying on any business in India.I. held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. by a person resident outside India. The Reserve Bank of India (R. foreign security or any immovable property situated outside India.B. or For any other purpose. Transfer or issue of any foreign security by a person resident in India. a person who has come to India for any purpose except : Taking up employment in India. iv. only according to FEMA FOREIGN SECURITY: means any security. which itself would indicate his intention to stay outside India for an uncertain period. own transfer or invest in foreign currency. own possess or transfer any foreign Exchange. may prohibit. foreign security or any immovable property situated outside India if such currency. 4. other than a lease not. hold. "a person resident outside India" means "a person who is not resident in India" Implication on different categories Person resident in India Provision of FEMA. exceeding five years. stocks. may make all these restrictions. which alters the assets or liabilities. A person who is resident in India. including contingent liabilities. are applicable with different implication on Person resident in. which itself would indicate his intention to stay in India for an uncertain period C. v. debentures or any other instrument denominated or expressed in foreign currency and includes securities expressed in foreign currency. and outside India. but where redemption or any form of return such as interest or dividends is payable in Indian currency 2. vi. Similarly. Any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India. If any amount of foreign exchange has become due or has accrued to any person resident in India. they are: 1.• • ii. in the form of shares. or For any other purpose. by a person resident in India and owed to a person resident outside India. then he shall take steps to realize and bring it back to India within the time frame and manner specified by Reserve Bank . Person resident outside India Simply putting it. can acquire.

prohibit. on "Person Resident outside India"." 4. and also general or special permission of Reserve Bank is required. . The Reserve Bank may prohibit. office or other place of business by a "person resident outside India". with respect to "Capital Account Transactions". 3. transfer or invest in foreign currency. 2.PERSON RESIDENT OUTSIDE INDIA Implications of FEMA. restrict or regulate any of the following • • • • • • Transfer or issue of any security by a person resident outside India. Foreign currency account held or operated by such person or class of persons and the limit upto. for carrying on any activity relating to such branch. provisions of FEMA has to be complied. security or property was acquired. obligation or other liability incurred. for receiving any payment by order or on behalf of any "person resident outside" in any manner. held or owned by such person when he was ' resident outside India" or inherited from a "person who was resident outside India. or any immovable property situated outside India if such currency. office or other place of business. The Reserve Bank of India may also regulate the above noted activities. Possession of foreign currency or foreign coins by any person upto such limit as the Reserve Bank may specify. 3. held or owned by such person when he was "resident in India" or inherited from a person who was resident in India 5. which is held outside India by any person in pursuance of a general or special permission granted by the Reserve Bank. by a person resident outside India. to a "person resident outside India". Transfer or issue of any security or foreign security by any branch. own. are as follows: 1. provisions of FEMA has to be complied. Giving of a guarantee or surety in respect of any debt. restrict. by a person resident outside India. own. transfer or invest in Indian currency. 2." Any borrowing or lending in rupees in whatever name called between a "person resident in India" and a "person resident outside India" Deposit between "persons resident in India" and "persons resident outside India" Acquisition or transfer of immovable property in India other than a lease. not exceeding five years. Foreign Exchange acquired or received before the 8th day of July 1947 or any income arising or accruing thereon. the provisions of FEMA will not apply with regard to Holding and Repatriation of Foreign Exchange: 1. security or property was acquired. Exemptions Circumstances where holding and repatriation of foreign exchange is "exempted" from FEMA rules In following circumstances. and also general or special permission of Reserve Bank is required Similarly. A "person resident in India" may hold. A "person resident outside India" may hold. which the Reserve Bank specifies. Reserve Bank may by regulation. security or any immovable property situated in India if such currency. foreign security. For making any sort of payment in any manner. or regulate establishment in India of a branch. office or agency in India of a "person resident outside India.

if refunds is not to compensate for a loss 2. Foreign Exchange acquired from employment. if they are issued solely for use within India.000 or more the payment received by the Authorized Dealer. Travelers cheque negotiable only in India • Rupee Travelers cheque cannot be encashed outside India. Authorized Dealers may do so without referring to Reserve Bank. business.000 either for any single installment or for more than one installment reckoned--. Exception: However where purpose of sale of foreign exchange is for travel abroad for business etc. Mode of payment of rupees against sale of foreign exchange • In case of sale of foreign Exchange or remittance foreign Exchange amounting to Rs. if such foreign exchange was acquired by way of gift or inheritance from a person who acquired or received it before 8th of July 1947 or if the income has occurred to him. and the purpose of remittance is an approved one. which are still existing are: 1. inheritance or any other legitimate means upto such limit as the Reserve Bank may specify. Application should be made in FORM -A1.together for a single journey / visit it should be paid by the traveler by means of a gross cheque / demand draft/ pay order as stated above. 50. if the purpose of remittance is import of goods into India. 20. In such a case they cannot be taken or sent out of India. trade vocation. 5. 4. 50. Such other receipt in foreign Exchange as the Reserve Bank may specify. Foreign Exchange held by a person resident in India upto such limit as the Reserve Bank may specify. . Receipt of Payment in cash in case of such sale of foreign Exchange or remittance in foreign Exchange is strictly prohibited.000/- • • • • Where the rupee equivalent for drawing foreign exchange exceeds Rs. Payment can also be accepted in the form of a Banker's cheque / Pay Order / Demand Draft. services.4. For any other purpose in Form -A2 The Authorized Dealer may sell the foreign Exchange applied for if he think fit provided it is within his powers. honorarium. 6. 3. from the applicant should be through a crossed cheque drawn on the applicant bank account or on the bank account of the Firm/ Company. Refund of inward remittances If a request is made from the overseas for cancellation of Inward Remittances. cash may be received by Authorized Dealer from Applicant upto Rs. gifts. which was held outside India in pursuance of a general or special permission granted by the Reserve Bank. Application for remittances in foreign currency • • • • A person firm or bank may apply to an Authorized Dealer for remittances in any foreign currency to a beneficiary abroad. Important provisions from FEMA Relevant provisions of exchange control manual for the purpose of FEMA Some of the relevant provisions of Exchange Control Manual under FEMA.

Reimbursement outside India Rupee Travelers cheque.A STEP AHEAD Similarities The similarities between FERA and FEMA are as follows: • • • The Reserve Bank of India and central government would continue to be the regulatory bodies. • • 8. The Directorate of Enforcement continues to be the agency for enforcement of the provisions of the law such as conducting search and seizure Differences between FERA and FEMA . Such a certificate is valid for such reconversion i. which are issued by authorized dealers. is required to show that the rupee had been acquired by sale of foreign Exchange to an Authorized Dealer or money changer in India.Comparison • • • SIMILARITIES DIFFERENCES CHANGES / PROGRESSION FROM FERA TO FEMA . may be reimbursed by Authorized Dealers or by their selling Agent. Dealings in foreign currency notes and coins between authorized dealers and between authorized dealers and money changers would also be at rates determined by market conditions. Reconversion of Indian currency • Foreign currency may be sold against Indian Rupees held by persons who are not resident of India but are passing through or leaving India after a visit. For this purpose.• Reimbursements should be strictly refused where such travelers cheques have been encashed outside India. 6. FERA and FEMA . 7. exchange bureau or Authorized Money changer in form BCI.e. a Bank or Encashment certificate issued by Authorized Dealer. Import of foreign currency notes When the stock of foreign currency notes with Authorized Dealer is not adequate for meeting their normal business requirement they could import foreign currency notes from their overseas branches or correspondents. a period of three months is not over from the date of sale of the foreign currency by the traveler. Presumption of extra territorial jurisdiction as envisaged in section (1) of FERA has been retained. at the time of their departure from India. encashable outside India. Rates of exchange Authorized dealers and their Exchange bureau may buy from and sell to public foreign currency notes and coins at rates of exchange determined by market conditions. 5. ECF OR ECR.

The monetary penalty payable under FERA. service etc. No 1 DIFFERENCES PROVISIONS FERA FEMA FERA consisted of 81 sections. under FERA. Presumption of negative intention (Mens These presumptions of Mens Rea Rea ) and joining hands in offence and abatement have been excluded (abatement) existed in FEMA in FEMA FEATURES 2 NEW TERMS IN FEMA 3 Terms like Capital Account Transaction. Imprisonment is prescribed only when one fails to pay the penalty. 1961 will also be considered a non-resident for the purposes of application of FEMA. There was a big difference in the definition of "Resident". off shore banking Units etc. Transaction person. . Transaction. and consist more complex of only 49 sections. 1973 some amount of money as a penalty. was nearly the five times the Under FEMA the quantum of penalty has been considerably decreased to 7 QUANTUM OF PENALTY. have been defined in detail in FEMA 4 DEFINITION OF AUTHORIZED PERSON Definition of "Authorized Person" in FERA was a narrow one ( 2(b) The definition of Authorized person has been widened to include banks. but a person who is considered to be non-resident under FEMA may not necessarily be a non-resident under the Income Tax Act. MEANING OF "RESIDENT" AS COMPARED WITH INCOME TAX ACT. for instance a business man going abroad and staying therefore a period of 182 days or more in a financial year will become a non-resident under FEMA.. and Income Tax Act 5 PUNISHMENT 6 Any offence under FERA. were not defined in FERA. the offence is considered to be offence . person. are in consistent with income Tax Act. current account service etc. was a criminal Here. money changes. punishable with imprisonment a civil offence only punishable with as per code of criminal procedure. Now the criteria of "In India for 182 days" to make a person resident has been brought under FEMA. and was FEMA is much simple. in respect to the definition of term " Resident".Sr. Terms like Capital Account current Account Transaction. Therefore a person who qualifies to be a non-resident under the income Tax Act. (2 ( c ) The provision of FEMA.

POWER OF SEARCH AND SEIZE FERA did not contain any express provision on the right of on impleaded person to take legal assistance 10 FERA conferred wide powers on a police officer not below the rank of a Deputy Superintendent of Police to make a search A Step ahead From FERA To FEMA Enactment of FEMA has brought in many changes in the dealings of Foreign Exchange. Residential Status . initiate proceeding. i.e. before " Foreign Exchange Regulation Appellate Board went before High Court three times the amount involved. search any premises. as compared to FERA. Civil imprisonment is provided. Omission of Criminal Proceedings Under FERA. are as follows: Withdrawal of Foreign Exchange Now. in public interest in consultation with the Reserve Bank impose such reasonable restrictions for current account transactions as may be prescribed. seize documents. The appellate authority under FEMA is the special Director ( Appeals) Appeal against the order of Adjudicating Authorities and special Director (appeals) lies before "Appellate Tribunal for Foreign Exchange.18. the restrictions on withdrawal of Foreign Exchange for the purpose of current Account Transactions. only in case of default to pay fine. and contravention of FEMA is no more a Criminal offence.amount involved. However. any contravention was a criminal offence and the proceedings were governed by the code of Criminal Procedure. 3. and only monetary penalty. (sec 17. services except for retaining certain enabling provisions for the Central Government to impose reasonable restriction in public interest. and some has widened the scope. Moreover the Enforcement Directorate had powers to arrest any person." An appeal from an order of Appellate Tribunal would lie to the High Court. has been removed. civil proceedings are applicable. the Central Government may. However some of the relevant progress made. Now all these have been done away with. Some of them are restrictive. APPEAL An appeal against the order of "Adjudicating office". from FERA to FEMA. FEMA has also by and large removed the restrictions on transactions in foreign Exchange on account of trade in goods.35) FEMA expressly recognizes the right of appellant to take assistance of legal practitioner or chartered accountant (32) The scope and power of search and seizure has been curtailed to a great extent 8 9 RIGHT OF ASSISTANCE DURING LEGAL PROCEEDINGS. 2.

a branch was considered a resident of a place where it was situated. Now FEMA prohibits a resident to acquire. under FERA. indicates that it is not necessary that there should be a continuous period of stay. an office. a person residing in India has a branch in Mauritius. Now. The distinction based on citizenship has been abolished and that based on resident ship has been introduced. The period of 182 days as provided. via internet or mail. a Doctor. there was no restriction placed on foreign citizens who were residents of India. for acquiring immovable property outside India. With this provision being effective a foreign citizen who is a resident in India has to take approval of Reserve Bank of India for selling or buying any immovable property situated outside India. under FERA. and his fees may be credited to his credit account. for his services rendered is obliged to furnish details of payment to the 'Reserve Bank.The definition of "Residential Status" under FEMA has gone through considerable change. What Type of Offences? . such branch will be considered a resident in India. 7. 6. This restriction applies irrespective of whether the resident is an Indian citizen or foreign citizen. For example. Export of Services FERA had no provision for export of services. Current Account Transactions". For example. own process. Then he is obliged to furnish details of such payment to Reserve Bank. Earlier. Immovable Property In India Earlier. Only a non-resident as defined within the meaning of FEMA would require permission of the Reserve Bank to acquire or transfer an immovable property in India. under FEMA. under FERA. FEMA has included payment received by an Exporter of Services in its ambit. Every Exporter. a foreign citizen could acquire or transfer immovable property in India only after seeking permission from the Reserve Bank. Now. An Indian resident becomes a non-resident when he goes abroad and takes up a job or engages in business. Now. The period of stay would be calculated by adding up all the days of stay of the individual in the country. 4. who receives payment from outside India. hold or transfer any immovable property situated outside India. branch or agency outside India owned or controlled by a person resident in India will be considered a resident in India for the purposes of this Act. have been included in FEMA. or Engineer or Lawyer or Accountant or any other professional may give opinions or consultation to people outside India. A major change in the definition of residential status of partnerships and firms in worth noticing. the control of Reserve Bank is determined by the residential status of a person. Inclusion of New Terms Some new terms like "Capital Account Transactions. Reserve Bank has been confirmed with powers and with consultation with central government to specify maximum permissible limit upto which exchange is admissible for such transactions. under FEMA. The residential status is now based on the physical stay of the person in the country. 5. Immovable Property outside India Earlier. It has now been made compatible with the definition provided under "Income Tax" Act.

not given a free hand to deal in foreign Exchange. He has to furnish details and information. to Reserve Bank from time to time as may be required by it Prosecution of Offences Committed Before detailing the procedure for prosecution. No one receives any payment from a person resident outside India. (sec 4) Similarly a person resident outside India. Authorized Person An "Authorized Person" under FEMA. A person resident in India cannot deal in foreign exchange. necessary application along with relevant documents has to be furnished to Reserve Bank. An "Authorized Person" is also. is a person who is authorized by Reserve Bank to deal in Foreign Exchange. without permission of Reserve Bank. it is important to mark out the Adjudicating Agencies. cannot acquire immovable property in India without permission. amount of payment received etc.Although under FEMA. to give details to Reserve Bank regarding value of export. within the time specified by Reserve Bank. without permission of Reserve Bank. offences pertain to transactions in foreign Exchange only. without permission of Reserve Bank. mode of payment. Appeal to The Appellate Tribunal . However relevant offences are as follows: Details in Foreign Exchange: • • • • • Only a person Authorized by Reserve Bank can deal in foreign Exchange No one can make a payment to a person resident outside India. foreign security or any immovable property situated outside India. They are: Adjudicating Authority The inquiry of any contravention of FEMA is conducted by an Adjudicating Authority appointed by the Central Government Appeal to Special Director (Appeals) The special Director (Appeals) is authorized to hear the appeals arising out of in order of the Adjudicating Authority. he shall realize and repatriate (Bring Back) such amount. Repatriation of Foreign Exchange Where any amount of foreign exchange has become due or accrued to any person who is a resident in India. For being registered as an "Authorized Person". Exporter of Goods and Services • Every exporter of goods and services is under an obligation.

Director of Enforcement The Director of Enforcement and other officers has power to conduct investigation. Such person (offender) will have a right to give reasons or explanation. and then a date will be fixed for his appearance. Then in turn. along with three copies of the order appealed against and the requisite fees. if Adjudicating Authority is convinced. then it will impose such fine and penalty. On the date of hearing the appeal the applicant may appoint a legal practitioner or a chartered accountant to appear. On the date of appearance. Procedure Inquiry by Adjudicating Authority (14) The inquiry of any contravention of FEMA is conducted by an Adjudicating Authority. from the date of receipt of receipt of impugned order. plead and act on their behalf before the special Director (Appeal) The order of the special Director (Appeals) made at the conclusion of the proceedings shall be in writing and shall state briefly the grounds for the decision. and will also mention the nature of offence committed by him. search and seize any articles. 1". and explain the reason and type & implications of offence committed by offender. such person will also be given an opportunity to put up his case. the Adjudicating Authority shall issue a notice to such person.The Appellate Tribunal is entitled to hear appeals made in accordance. Appeal to The Appellate Tribunal (19) . The appeal should be filed within 45 days. as it thinks fit. and to produce documents and evidence. The notice will also indicate the date on which the offender is required to appear before authority. an inquiry is to be conducted against a person for any contravention. Finally. that the offender has committed an offence. from an order made by Adjudicating Authority or special Director (Appeals). He can appear either personally or through an Advocate or chartered accountant. • • • Appeal to Special Director (Appeals) (17) Appeal from an order of "Adjudicating Authority" lies before" special Director (appeal)" • • • • The appeal shall be made in "Form No. the Adjudicating Authority shall present its case. • • • When.

along with three copies of the impugned order and requisite fees. Further in addition to the penalty. The appeal shall be made within 45 days. The appeal shall be filed within "60 days" from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law arising from the impugned order. 2. then Rs. Amount of Penalty Any contravention. security or other money or property involved in the contravention may also be confiscated . The appellant shall have the right to present his case / appeal through a legal practitioner or chartered Accountant. If. "Director of Enforcement. Appeal to High Court (35) • • An appeal from the decision of "Appellate Tribunal" lies before High Court. A copy of the order and appeal shall be sent to the opposite party."Appellate Tribunal" is entitled to hear appeal arising out of an order from "Adjudicating Authority" and "special Director (appeal). the amount against which offence is quantities. the contravention is continuing everyday. under FEMA. the "Appellate Tribunal" shall pass its order in writing and the reasons therefore." • • • • • The appeal shall be made in Form No. any currency. then penalty will be "THRICE" the sum involved in contravention.e." and a date shall be fixed for hearing of the appeal. Where the amount cannot be quantified the penalty may be imposed upto two lakh rupees. from the date on which copy of the impugned order is received. Five Thousand for every day after the first day during which the contravention continues. i. On the fixed date of hearing. may invite following kinds of penalties: • • • If.