FEMA ACT

DEALING IN FOREIGN EXCHANGE

• No person shall engage in the under specified actions unless given
special sanction from RBI:

• (a) deal in or transfer any foreign exchange or foreign security to any

person not being an authorised person;

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

• (c) receive otherwise through an authorised person, any payment by

order or on behalf of any person resident outside India 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
• No person resident in India shall acquire, hold, own, possess or
transfer any foreign exchange, foreign security or any immovable
property situated outside India.
• Sub-section (4) allows a person resident in India to hold, own,
transfer or invest in foreign currency, foreign security or any
immovable property situated outside India, if such currency,
security or property was acquired, held or owned by such person
when he was resident outside India or inherited from a person
who was resident outside India.
• Similarly, a person resident outside India is permitted to hold,
own, transfer or invest in Indian currency, security, or any
immovable property situated in India if such currency, security or
property was acquired, held or owned by such person when he
was resident in India or inherited from a person who was resident
in India.
CAPITAL ACCOUNT TRANSACTIONS
• A capital account transaction meaning is when India and other
countries trade money-related things like assets and debts
with each other. It includes transactions related to buying or
selling non-financial assets, such as real estate and patents,
and financial assets, including stocks, bonds, and derivatives.
• The components of a capital account include the flow of
foreign capital and loans, banking activities, and other forms
of investment, as well as fluctuations in the foreign exchange
reserve.
• However, capital account transactions are restricted to a
certain limit per the relevant regulations. The RBI or Central
Government do not impose any restrictions on the withdrawal
of foreign exchange for depreciation (decline in value) of direct
investments.
EXAMPLE
• 1. Nim, a person resident in India purchases a property in
India. Is FEMA applicable to him? The answer to this
question is no because there is no involvement of foreign
exchange. To apply FEMA in any transaction the
involvement of one person should be from India and the
other person should not be a resident in India.

• 2. Mr. Lucas, a person resident outside India purchases

shares of an Indian company. Is FEMA applicable on this
transaction? The answer is yes because Mr. Lucas is a
person resident outside India and asset and liability is
altered of an Indian company then FEMA is applicable.
CURRENT ACCOUNT TRANSACTIONS
• A current account transaction includes various
types of payments associated with foreign trade,
general business activities, services, short-term
banking, and credit facilities used for
regular business operations.
• It includes interest payments on loans and net
income generated from investments. Additionally, it
covers remittances sent to support the living
expenses of family members, such as parents,
spouses, and children residing in another country.
• Education-related expenses, foreign travel, and
medical care for parents, spouses, and children
further fall under current account transactions.
• Current account transactions are much smoother
than capital account transactions by regulations.
According to Section 5 of the FEMA (Foreign
Exchange Management Act), any individual has the
authority to buy or sell foreign currency from an
authorised dealer if it is for a current account
transaction.

• To prevent money laundering through current

account transactions, the Reserve Bank of India
(RBI) may impose certain restrictions requiring the
valuation report of the particular imported product
or service.
EXPORT OF GOODS AND SERVICES
• Every exporter of goods shall –
• (1) furnish to the Reserve Bank or to such other authority
a declaration in such form and in such manner as may be
specified, containing true and correct material particulars,
including the amount representing the full export value
or, if the full export value of the goods is not ascertainable
at the time of export, the value which the exporter, having
regard to the prevailing market conditions, expects to
receive on the sale of the goods in a market outside India;
• (2) furnish to the Reserve Bank such other information as
may be required by the Reserve Bank for the purpose of
ensuring the realisation of the export proceeds by such
exporter.
Contd.
• The Reserve Bank may determine the full value of the
export goods or reduced value of those goods to ensure
that they comply with the prevailing market conditions
and to check that it is received without any delay and if not
that can direct any exporter to comply which such
requirements as it deems fit.

• With regards to the payment of services, every exporter of

services shall provide to the Reserve Bank or to any other
authority, a declaration in a form and it should be in such
a manner which is already specified and also which
contains the true and correct material particulars.
•.