New era under FEMA

The Foreign Exchange Regulation Act, 1973
(FERA)
Object
Conservation of foreign Exchange
Severe penal provisions
All acts controlled and regulated
Applied to Indian Citizens in/outside India
and Foreign Citizens in India.
Blanket powers of search, seizure,
imprisonment, etc.
Presumption of Mens-rea
The Foreign Exchange Management Act,
1999 (FEMA)
Object
facilitating external trade and payment
and promoting orderly development and
maintenance of foreign exchange market
Contravention attracts penalty / fine and
not imprisonment (except in some cases) /
compounding
Only specified acts regulated
Citizenship - not relevant / Residence -
Emphasized
Restricted power of search, seizure, etc.
No Presumption of Mens Rea..
Prosecution to prove
Provision for compounding

1
Broad Framework

FEMA
FEMA 1999
1999
FERA
FERA replaced
replaced by
by FEMA
FEMA on
on June
June 1,
1, 2000.
2000.

Aims
Aims of
of FEMA
FEMA
Facilitate
Facilitate external
external trade
trade and
and payments
payments
Promotion
Promotion ofof orderly development of
orderly development of foreign
foreign exchange
exchange markets
markets

FEMA
FEMA Rules
Rules // Regulations
Regulations
Rules
Rules notified
notified by
by Central
Central Government(Current
Government(Current account
account ))
Regulations
Regulations notified
notified the
the Reserve
Reserve Bank
Bank of
of India
India (RBI)
(RBI) .
. (Capital
(Capital account)
account)
Consultation
Consultation between
between RBIRBI and
and the
the Central Government..
Central Government

2
Important Definitions

Section 2(v) Person resident in India (PRI) means

Person
Person residing
residing in
in India
India >> 182
182 days
days during
during preceding
preceding financial
financial year
year but
but does
does not
not include:
include:
Person
Person who
who has
has gone
gone out
out of
of India
India or
or who
who stays
stays outside
outside India,
India, in
in either
either case
case
oo For/on taking up employment outside India,
For/on taking up employment outside India, or or
oo Carrying
Carrying on
on outside
outside India
India aa business
business or or vocation
vocation outside
outside India,
India, or
or
oo For
For any
any purpose,
purpose, indicating
indicating intention
intention to
to stay
stay outside
outside India
India for
for an
an uncertain
uncertain period.
period.
Person
Person who
who has
has come
come to to or
or stays
stays in
in India,
India, otherwise
otherwise than
than
oo For/on
For/on taking
taking up
up employment
employment in in India,
India, or
or
oo Carrying
Carrying on
on in
in India
India aa business
business or or vocation
vocation in
in India,
India, or
or
oo For
For any other purpose, indicating intention to stay in India
any other purpose, indicating intention to stay in India for
for an
an uncertain
uncertain period.
period.
Any
Any Person
Person or
or body
body corporate
corporate registered
registered or
or incorporated
incorporated in
in India.
India.
An
An office,
office, branch
branch or
or agency
agency in
in India
India owned
owned or
or controlled
controlled by
by aa person
person resident
resident outside
outside India.
India.
An
An office,
office, branch
branch or
or agency
agency outside
outside India
India owned
owned or
or controlled
controlled by
by aa person
person resident
resident in
in India.
India.
Section 2(w) - Person resident outside India (PROI)
Person resident outside India means a person who is not resident in India.

3
 NRI has been defined under FEMA Regulation 2(vi) of the FEMA - 5 (Deposit)
Regulations 2000 as follows:
An NRI is a person resident outside India who is a citizen of India or is a Person of
Indian Origin
It is possible that you may be an NRI under FEMA, yet you may be a resident under
the Income tax laws.

4
 Important Definitions

Section 2(e) Capital Account Transaction Section 2(j) Current Account Transaction

A
A transaction
transaction which
which alters
alters the
the assets
assets or
or liabilities
liabilities A
A transaction
transaction other
other than
than aa capital
capital account
account transaction
transaction
which
which include:
include:
Outside
Outside India
India of
of persons
persons resident
resident in
in India,
India,
(including
(including Contingent
Contingent Liabilities);
Liabilities); Payments
Payments due
due in
in connection
connection with
with foreign
foreign trade,
trade,
other
other current
current business,
business, services,
services, short-
short- term
term
In
In India
India of
of persons
persons resident
resident outside
outside India;
India; and
and banking
banking and credit facilities in the ordinary course
and credit facilities in the ordinary course
of
of business;
business;
Includes
Includes transactions
transactions specified
specified in
in Section
Section 6(3).
6(3).
oo Foreign security by resident;
Foreign security by resident; Payments
Payments due
due as
as interest
interest on
on loans
loans and
and as
as net
net
oo Any
Any Security
Security by by non-resident;
non-resident; income
income from
from investments;
investments;
oo Transfer
Transfer or issue of
or issue of any
any security
security or
or foreign
foreign
security
security by any branch, office or agency in
by any branch, office or agency in India
India of
of Remittances
Remittances for
for living
living expenses
expenses of
of parents,
parents,
aa non-resident;
non-resident; spouse
spouse and
and children
children residing
residing abroad;
abroad; and
and
oo Borrowing
Borrowing // Lending
Lending in in Foreign
Foreign Exchange;
Exchange;
oo Borrowing
Borrowing / Lending in rupees between residents
/ Lending in rupees between residents Expenses
Expenses on
on foreign
foreign travel,
travel, education
education and
and
and non-residents;
and non-residents; medical
medical care
care of
of parents,
parents, spouse
spouse and
and children.
children.
oo Deposits
Deposits between
between residents
residents and and non
non residents;
residents;
oo Holding
Holding ofof currency
currency or or currency
currency notes;
notes;
oo Acquisition
Acquisition // transfer
transfer of of immoveable
immoveable property
property in in
India / outside India (except those on
India / outside India (except those on lease for lease for
less
less than
than five
five years);
years);
oo Giving
Giving ofof guarantee
guarantee // surety
surety byby resident
resident // non-
non-
residents.
residents.

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FEMA - Current Account Transactions Rules, 2000

FEMA Current Account Transaction Rules

Transactions expressly prohibited Schedule I read with

Rule 3
Transactions which require prior approval of Government of
India Schedule II read with Rule 4
Transactions which require prior approval of RBI Schedule
III read with Rule 5
Relaxations from Rule 4 and 5 for many items paid from
Resident Foreign Currency (RFC) Account and Exchange
Earners Foreign Currency (EEFC) Accounts.

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Routes of Investment