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Foreign Exchange Management Act

The Foreign Exchange Management Act (FEMA) replaced the Foreign Exchange Regulation Act (FERA) in 1999. FEMA established a new framework for managing foreign exchange that is consistent with India's liberalization policies and its obligations with the World Trade Organization. The objectives of FEMA are to facilitate external trade and payments, promote an orderly foreign exchange market, and consolidate laws around foreign exchange. FEMA applies throughout India and to Indian residents operating abroad. It regulates transactions involving foreign exchange, currency, securities, and property between Indian residents and non-residents.

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59 views2 pages

Foreign Exchange Management Act

The Foreign Exchange Management Act (FEMA) replaced the Foreign Exchange Regulation Act (FERA) in 1999. FEMA established a new framework for managing foreign exchange that is consistent with India's liberalization policies and its obligations with the World Trade Organization. The objectives of FEMA are to facilitate external trade and payments, promote an orderly foreign exchange market, and consolidate laws around foreign exchange. FEMA applies throughout India and to Indian residents operating abroad. It regulates transactions involving foreign exchange, currency, securities, and property between Indian residents and non-residents.

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Foreign Exchange Management Act The Foreign Exchange Regulation Act of 1973 (FERA) in India was repealed on 1 June,

2000. It was replaced by the Foreign Exchange Management Act(FEMA), which was passed in the winter session of Parliament in 1999. FEMA, which has replaced FERA, had become the need of the hour since FERA had become incompatible with the pro-liberalisation policies of the Government of India. FEMA has brought a new management regime of Foreign Exchange consistent with the emerging frame work of the World Trade Organisation (WTO). It is another matter that enactment of FEMA also brought with it Prevention of Money Laundering Act, 2002 which came into effect recently from 1 July, 2005 and the heat of which is yet to be felt as Enforcement Directorate would be invesitigating the cases under PMLA too. Objectives and Extent of FEMA The Intent of this Act is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. FEMA extends to the whole of India. It applies to all branches, offices and agencies outside India owned or controlled by a person who is a resident of India and also to any contravention there under committed outside India by any person to whom this Act applies. Except with the general or special permission of the Reserve Bank of India, no person can : deal in or transfer any foreign exchange or foreign security to any person not being an authorized person; make any payment to or for the credit of any person resident outside India in any manner; receive otherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner; reasonable restrictions for current account transactions as may be prescribed.

The Reserve Bank can, by regulations, prohibit, restrict or regulate the following : transfer or issue of any foreign security by a person resident in India; transfer or issue of any security by a person resident outside India; transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India; any borrowing or lending in foreign exchange in whatever form or by whatever name called; any borrowing or tending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India; deposits between persons resident in India and persons resident outside India; export, import or holding of currency or currency notes; transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India;

acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India;

giving of a guarantee or surety in respect of any debt, obligation or other liability incurred (i) by a person resident in India and owed to a person resident outside India or

(ii) by a person resident outside India. A person, resident in India may 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. The Reserve Bank may, by regulation, prohibit, restrict, or regulate establishment in India of a branch, office or other place of business by a person resident outside India, for carrying on any activity relating to such branch, office or other place of business. Every exporter of goods and services must : 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; furnish to the Reserve Bank such other information as may be required by the Reserve Bank for the purpose of ensuring the realization of the export proceeds by such exporter.

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