FEMA

FEMA

Foreign Exchange
Management Act
In order to trace the origin of FEMA, we ll
have to go back into history……

……when it was known

as FERA.
 FERA
FERA
Foreign Exchange
Regulation Act
FERA was an act to regulate:

 certain payments, transactions indirectly

affecting foreign exchange,

 the import and export of currency,

 the conservation of the foreign exchange

resources of the country and their proper
utilization thereof in the development of the
country.
FERA OBJECTIVES:

 To prevent the outflow of the Indian Currency

 To see that the foreign exchange legitimately due to India
should be received.
 To regulate the transactions indirectly affecting
foreign exchange
 To regulate holding of immovable property outside
India
 To regulate employment of foreign nationals
Provisions:
 Regulation of dealings in Foreign Exchange: Take
permission from the Reserve Bank for Foreign
Exchange Transactions.
 Restrictions on Payments: No body shall
-make any payment to or for any person outside
India
-receive any payment on behalf of anybody
outside India
 Restrictions regarding assets held by Non
residents and Import and Export of certain
currency and Bullion.
Provisions:
 Restriction on Establishment of place of business
in India.
 Prior permission of Reserve Bank required for
taking up employment in India by Nationals of
foreign state.
 Restrictions on appointment of certain persons
and companies as agents or technical or
management advisors in India.
Insights into FERA:
 FERA applies to the whole of India, to citizens of
India outside India and to branches and
agencies outside India registered in India .

 Came into force with effect from January 1,

1974.

 Was enacted by Parliament in the Twenty-fourth

Year of the Republic of India.
Reflections on FERA:
 1) No legal forum or a court for a person to recover
money due to him from outside India on account of sale,
etc.

 Must have the recourse to International Commercial

Arbitration, only if enormous amounts are involved.

 Of late, demand is that FERA should be abolished.

Corporates find themselves confronted by serious
allegations of violation of the Act.
Contd..
 2) Impression created by the Government Agencies :
Foreign Exchange is very precious and must be
protected at all cost.

 So, FERA contains stringent provisions.

 FERA violators are treated as criminals.

 eg: an entrepreneur arrested for being in possession

of Rs. 450 in foreign exchange , though was left over
from a journey abroad, sanctioned by the
Government.
Contd..
3) As India has app 30 billion dollar foreign
exchange reserve position and there is no
scarcity of the foreign exchange, the act
should be done away with.

Some experts observed that the Act is

outdated and either needs to re-written or
over-hauled. It should be liberated.
4) There is no harmony between FERA
and Direct tax laws, eg: basic definition of
resident are dichotomous and totally
different.
From FERA to FEMA

FERA had outlived its utility on account of

significant developments as follows:
Reasons to repeal the FERA:
 Substantial increase in the foreign exchange
resources.
 Growth in Liberalization of Indian
Investments abroad
 foreign trade
 Rationalization of tariffs
 Increased access to external commercial
borrowings by Indian corporates
 Participation of foreign investors in the Stock
markets
Amendments:
Section 11: Restrictions regarding assets
held by non-residents: blocking bank
accounts and securities for people who
had migrated abroad.
Contd..
Section 13: Restriction on Import and
export of certain currency bullion: Gold
and Silver through Exim Policy and foreign
exchange and Indian Currency under
FERA.

Section 17: Power to regulate uses , etc,

of imported silver and gold- deleted as has
been covered in Section 13
Contd..
Section 25: Restrictions on holding of
immovable outside India: has enabled RBI
to grant permission to holding of property
outside India under certain conditions.
FEMA

Foreign Exchange
Management Act
On August 4, 1998, the finance minister
introduced FEMA in the Lok Sabha.
Objective
 To consolidate and  To promote the
amend the law orderly development
relating to foreign and maintenance of
exchange to facilitate the foreign exchange
external trade and market in India.
payments.
Some basic terms:
Authorized Person means any
authorized dealer, money changer, or any
other person for the time being authorized
under Section 10(1) to deal in foreign
exchange or foreign securities.
Types of transactions:
 Capital Account  Current Account
Transaction means a Transaction has been
transaction which alters defined as a transaction
the assets or liabilities, other than capital
including contingent
liabilities, outside India account transaction.
of persons resident in
India or vice versa.  Means that all
(borrowing, lending & transactions that do not
investment – FDI , FII,
ECBs , NRI deposits , alter assets or liabilities
Overseas Investments outside India of residents
– expanding or assets or liabilities in
convertibility ) India of non-residents
transactions.
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 or such other similar
instruments, as may be notified by the
Reserve Bank.
Provisions
Section 3: Dealings in Foreign
Exchange:
No person shall
deal in and transfer foreign exchange
make or receive payment for anybody
outside India without permission from the
Reserve Bank.
Contd..
Section 4: Holding of Foreign Exchange:
No resident in India shall acquire or transfer
foreign exchange or any immovable
property outside India without permission
from the Reserve Bank.
Contd..
Section 5: Current Account
transactions: any person may sell or
draw foreign exchange to or from an
authorized person if such a sale or drawal
is a current account transaction.
Contd..
Section 6: Capital Account Transaction:
Any person may sell or draw foreign
exchange to or from an authorized person
is a capital account transaction. Only
limited Capital Account Convertibility
allowed.
Contd..
Section 7: Export of Goods and
Services : Every exporter of goods or
services shall furnish to the Reserve Bank
details regarding the export value of such
goods or services.
Contd..
Section 8: Realisation and Repatriation
of Foreign Exchange: Where any amount of
foreign exchange is due or accrued to any
person resident in India, such a person shall
take steps to realise and repatriate to India, such
for foreign exchange within a specified period of
time.
Thank You