INTRODUCTION
FEMA actually has a predecessor – a stricter, meaner and a
draconian predecessor, popularly called the FERA.
Foreign Exchange Regulation Act, 1974 or FERA – was
introduced in the year 1974 with the prime objective of
‘conserving/ preserving’ the foreign exchange; which
means the forex transactions were severely controlled to
avoid misuse – as it was considered a scarce resource.
Also – the mean part – if an offence was committed under
FERA it was considered a ‘criminal offence’!
With time, economic liberalization, globalization,
better forex transaction infrastructure and opening of
the world market, need was felt to do away with FERA
as its provision resulted in constricting the growth of
forex and ultimately the economy at large.
Thus at the turn of the millennium and India’s coming
of age FEMA was introduced in 2000, on 1st June, with
the Foreign Exchange Management Act, 1999.
FEMA stands for
Facilitating foreign exchange transaction – exports,
imports, and payments thereof;
Promoting development of forex;
Maintenance of a healthy forex market in the country.
Salient Features of FEMA
FEMA is applicable to Individuals (you and me!),
HUFs, companies, firms and AOPs and BOIs.
FEMA is applicable to a person ‘Resident’ in India – as
opposed to FERA’s 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 for more than 182 days, will be considered a
‘Resident’!
Currency’ under FEMA includes debit cards, ATM cards
and credit cardstoo!
FEMA treats offences committed under the Act as civil
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 buy forex from Post
Offices in the form of postal/ money orders! Easy
availability in the time of emergency requirements!
Any monetary transaction with Nepal 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!
‘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 Government’s
permission,
(iii) and those which require RBI’s permission.
The buying and selling of foreign currency and other debt
instruments by businesses, individuals and governments
happens in the foreign exchange market. Apart from being very
competitive, this market is also the largest and most liquid
market in the world as well as in [Link] constantly undergoes
changes and innovations, which can either be beneficial to a
country or expose them to greater risks. The management of
foreign exchange market becomes necessary in order to mitigate
and avoid the [Link] banks would work towards an orderly
functioning of the transactions which can also develop their
foreign exchange [Link] Exchange Market Whether
under FERA or FEMA’s control, the need for the management of
foreign exchange is important. It is necessary to keep adequate
amount of foreign exchange from Import Substitution to Export
Promotion.
Main Features
Activities such as payments made to any person
outside India or receipts from them, along with the
deals in foreign exchange and foreign security is
restricted. It is FEMA that gives the central
government the power to impose the restrictions.
Without general or specific permission of the MA
restricts the transactions involving foreign exchange or
foreign security and payments from outside the
country to India – the transactions should be made
only through an authorised person.
Deals in fore
Deals in foreign exchange under the current account by an
authorised person can be restricted by the Central
Government, based on public interest generally.
Although selling or drawing of foreign exchange is done
through an authorized person, the RBI is empowered by
this Act to subject the capital account transactions to a
number of restrictions.
Residents of India will be permitted to carry out
transactions in foreign exchange, foreign security or to own
or hold immovable property abroad if the currency,
security or property was owned or acquired when he/she
was living outside India, or when it was inherited by
him/her from someone living outside India.
Prohibited Current Account transactions ([Link]!!!!) –
you can’t draw foreign exchange for:-
Forex can’t 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 can’t remit any money outside India for the purchase of
lottery tickets, or banned magazines, sweepstakes, betting etc.
4. You can’t 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.
Approval of Central Government needed for :
. 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.
4. Remittance for hiring of transponders by ISPs and TV
channels.
Approval of RBI needed for:-
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.
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 doctor’s
estimate of expenses – if doctor’s estimate exceeds
USD 1,00,000 – then no approval is required
The limit under Liberalised 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.
THANK YOU
