Foreign Exchange Regulation Act (FERA), 1973

Government of India(PMwasSmt. Indira Gandhi) enactedForeign Exchange

Regulation Act (FERA)in1973,whichcameintoforcew.e.f.January 1,
1974, toregulate allIndianexchanges ordealings withforeign countries.

Atthetimeoflegislation of thelaw,India hadacuteshortageof

foreign exchange (forex). Thegovernmentthentriedtorestrict (very
strictly)theexchanges, ordealings ofIndiawithforeign countries.But
therules andregulations weresostringent thatithadagreatimpacton
theimport andexport ofcurrency.

Therewereseveralissues withthisact,like-
Law violators weretreatedascriminal offenders (insteadofcivil offenders)
Widepower onthehandofEnforcement Directorate(E.D)toarrestanyperson,
seizeanydocument(Corporateworldfoundthemselvesatthemercy ofE.D.!)
Controleverythingthatwasspecified,relatingtoforeign exchange, aimed
atminimizing dealingsinforexandforeign securities, etc.
 FERAwas too strict on regulating theforeign
exchanges, that acted like anobstacleinforeign
trade,and had becomeincompatiblewith thepro-
liberalizationpolicies of government.

Hencegovernment of India, underPMShri. Atal

Bihari Vajpayeerepealed theFERA Act, and
introducedFEMAin1999. This time, instead
of"regulating"theforeign exchange, government
tried to"manage"it (with simpler norms).

FEMAhas brought a newmanagement

regimeofforeign exchangewith the
newframeworkof theWorld Trade Organization
(WTO). Also, it brought with it thePrevention of
Money Laundering Act, 2002, w.e.f.July 1, 2005.
Unlike other laws whereeverything is
permitted unless specifically prohibited,
under this acteverything was
prohibited unless specifically permitted.
Hence the tenor and tone of the Act
was very drastic.
It required imprisonment even for
minor offences. Under FERAa person
was presumed guilty unless he proved
himself innocent, whereas under other
lawsa person is presumed innocent
unless he is proven guilty
 (a) Any person may sell or draw foreign
exchange, without prior permission and can
later on inform RBI. This makes it a more
positive feature.
(b) Under this act Enforcement Directorate
(F, D) will be more investigating in nature.
(c) FEMA recognized the possibility of even
the Capital Account convertibility i.e. It
classifies foreign exchange transaction and
current account transactions.
(d) The violation of FEMA is a civil offence.
 FERA was enacted in September 1973 and it came in
force from January 1, 1974.
It was amended by the Foreign Exchange Regulation
(Amendment) Act 1993 and later in 2000, was replaced
by FEMA.
FERA applied to all citizens of India, all over India. The
idea was to regulate the foreign payments, regulate the
dealings in Foreign Exchange & securities and
conservation of Foreign exchange for the nation.
Important features of FERA are as follows:
RBI can authorize a person / company to deal in foreign
exchange.
RBI can authorize the dealers to do transact the Foreign
Currencies, subject to review and RBI was given power
to revoke the authorization in case of non-compliancy
RBI would authorize the persons as Money Changers
who will convert the currency of one nation to currency
of their nation at rates Determined by RBI
 NO person, other than authorized dealer would enter
in any transaction of the foreign currency.
For whatever purpose Foreign exchange was required, it
was to be used only for that purpose. If he feels that he
cannot use the currency of that particular purpose, he
would sell it to a authorized dealer within 30 days.
No person in India, without permission from RBI shall
make payments to a person resident outside India and
receive any payment from a person from outside India.
No person shall draw issue or negotiate any bill of
exchange in which a right to receive payment outside
India is created.
No person shall make any credit in an account of a
person resident out of India.
No person except authorized by RBI shall send foreign
currency out of India. A person who has right to receive
the foreign exchange would have not to delay the
receipt of the foreign exchange.
 FEMA is applicable to Individuals (you and me!), HUFs, companies,
firms and AOPs (association of persons) and BOIs (body of
individuals).

FEMA is applicable to a personResidentin India as opposed to

FERAs citizenship criteria which means if the status of any person,
who is a citizen of India or not, is Resident he or she shall be covered
under the FEMA for any forex transaction as per the given provisions.

Under FEMA a person, who has been residing in India formore than
182 days, will be considered a Resident!

Currency under FEMA includesdebit cards, ATM cards and credit

cardstoo!

FEMA treats offences committed under the Act ascivil offences.

 Only Authorized Persons can deal in foreign exchange all our transactions
will be routed through them.
Authorized Persons are nothing but authorized dealers authorized by the RBI;
and they have to follow RBI guidelines very strictly to keep their licenses.

We are permitted by RBI to buyforex from Post Officesin the form of postal/
money orders! Easy availability in the time of emergency requirements!

Any monetary transaction withNepal or Bhutan in rupees these two

countires recognize and accept Rupees will not fall under FEMA!

Capital Account transactions are those transactions which alter the assets and
liabilities of a person buying/ selling of foreign securities, borrowing/ lending
of loans, purchase/ sale of immovable properties etc and all these being
across national boundaries!
NO restrictions on forex transaction for repayment of loans important to know!

Current Account transactions are those other than capital and are mostly
personal in nature like remittances for living expenses for studies/ medical
treatment abroad, foreign travel, foreign business etc.
 Current Account transactions are
categorized into three explicitly drawn out
categories which spell out the transactions
allowed and not allowed -
(i) those which are prohibited by FEMA,
(ii) those which require Central
Governments permission,
(iii) and those which require RBIs
permission.
 1.Forex cant be drawn for making payment
to any person in Nepal or Bhutan! Use Rupees!
2.Remitting lottery winnings outside India.
Remitting any income from winning in any
races/ horse races/ hobbies etc.
3.You cant remit any money outside India
for the purchase of lottery tickets, or banned
magazines, sweepstakes, betting etc.
4.You cant draw forex for making payments
on any Call Back Services on telephone calls
call back is when you call and then immediately
get a call back being routed through the
telephone services of a company where
charges are lower.
 1.Drawal of forex for taking cultural tours
outside India.
2.If state government or its undertakings
advertise in foreign print media (for any
purpose other than promotion of tourism,
investments exceeding USD 10,000) then
CG approval needed!
3.Remittance of prize money, sponsorship
of sporting activities abroad by persons other
than sporting bodies if the amount being
remitted exceeds USD 1,00,000.


1.For infrastructure projects if the consultancy is

taken from outside India and the remittance for such
exceeds USD 1,00,00,000 per project.
2.For any other projects if the consultancy is taken
from outside India and the remittance for such exceeds
USD 10,00,000.
3.Approval of RBI needed to release forex in excess
of USD 10,000 in one financial year.
4.Approval of RBI needed for gift/ donation
remittances in excess of USD 5,000 in one financial year,
per remitter or donor (the receiver of the gift remittance)
5.Exceeding USD 1,00,000 for persons going abroad
for employment/ emigration.
6.Exceeding USD 25,000 for business travel,
attending conference etc.
7.Medical treatment abroad based on doctors
estimate of expenses if doctors estimate exceeds USD
1,00,000 then no approval is required.
 The limit underLiberalised Remittance
Scheme, has be increase to USD 2,50,000
per financial year for permissible current or
capital account transaction or a
combination of both, whereby all resident
individuals, including minors, are allowed to
freely remit to that extent the increase
came in 2015.
 Authorized dealermeans a person for the time being authorized by the
Reserve Bank of India (RBI) under section 6 to deal in foreign exchange.

Bearer certificatemeans a certificate of title to securities, whose

ownership can be transferred by mere delivery, whether with endorsement
or not. In this sense, it is similar to a bearer cheque ie whoever has such a
certificate can easily encash it without any other persons endorsement.

Certificate of title to a securitymeans any document used in the

ordinary course of business as a proof of the possession or control of the
security or authorizing or purporting to authorize, either by endorsement or
by delivery the possessor of the document to transfer or receive the
security thereby represented.
Couponmeans the coupon representing the dividends or interest on a
security. Eg Dividend warrants
Currencyincludes all coins, currency notes, bank notes, postal notes,
postal orders, money orders, cheques, drafts, travellers cheques, letters of
credit, bills of exchange and promissory notes.

Foreign currencymeans any currency other than Indian currency.

 Foreign exchangemeans foreign currency and includes :-:
1. All deposits, credits and balances payable in any foreign
currency and any drafts, travellers cheques, letters of credit and
bills of exchange expressed or drawn in Indian currency but
payable in any foreign currency.
2. Any instrument payable at the option of the drawee or the
holder thereof or any other party, either in Indian currency or in
foreign currency or partly in one and partly in the other.
Foreign securitymeans any security created or issued outside
India and any security, the principal of or the interest on which is
payable in any foreign currency or is payable outside India.
Indian currencymeans the currency which is expressed or drawn
in Indian rupees but does not include special bank notes and
special one rupee notes issued under section 28A of the Reserve
Bank of India Act, 1934. Such Rupee One notes are issued by the
Ministry of Finance.

Indian Customs Watersmeans water extending into the sea
upto a distance of 12 nautical miles measured from the
appropriate base line on the coast of India and includes any bay,
gulf, harbour, creek or tidal river.
 Money changermeans a person for the time being authorized under
section 7 to deal in foreign exchange.

Owner, in relation to any security, includes :-

1. Any person who has the power to transfer the security; or

2. Any person who has the custody thereof; or

3. Any person who receives, whether on his own behalf or on behalf of

any other person, dividends or interest thereon and who has any
interest therein;

4. In a case where a security is held on in any trust or dividends or

interest thereon are paid into a trust fund, owner also includes any
trustee or any person entitled to enforce performance of the trust or
to revoke or vary, with or without the consent of any other person, the
trust or any terms thereof or to the control investments of the trust
moneys.
"person resident in India" means- (i) a person
residing in India for more than one hundred and eighty-
two days during the course of the preceding financial
year but does not include- (A) a person who has gone
out of India or who stays outside India, in either case- (a)
for or on taking up employment outside India, or (b) for
carrying on outside India a business or vocation outside
India, or (c) for any other purpose, in such
circumstances as would indicate his intention to stay
outside India for an uncertain period;
(B) a person who has come to or stays in India, in either
case, otherwise than- (a) for or on taking up
employment in India, or (b) for carrying on in India a
business or vocation in India, or (c) for any other
purpose, in such circumstances as would indicate his
intention to stay in India for an uncertain period; (ii) any
person or body corporate registered or incorporated in
India, (iii) an office, branch or agency in India owned or