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The Foreign Exchange Management Act, 1999 has come into effect on June 1, 2000 and has replaced the Foreign Exchange Regulation Act, 1973 (FERA). FEMA is a civil law. FEMA defines capital account and current account transactions, while power is delegated on Reserve Bank of India to regulate capital account transactions.
FERA was a criminal law
and the act was very drastic. It provided imprisonment for even a minor offense. Under this Act a person was presumed guilty unless he proved himself innocent. With liberalization, an urgent need was felt to remove the drastic measures of FERA and hence a liberal act FEMA was enacted to replace FERA.
Objectives of FEMA
- Facilitate external trade and payments
- Promote orderly maintenance of the foreign exchange market in India.
- Relax controls on joint ventures, collaborations, subsidiary establishments and the like both in India by foreigners and abroad by Indians.
The FEMA, is Applicable-
- To the whole of India.
- Any Branch, office and agency, which is situated outside India, but is owned or controlled by a person resident in India.
- Any contravention of provisions of FEMA, by all those, who are covered under above two aspects committed outside India.
FEMA Contains Definition of Certain Terms Which have been Used Throughout The ACT
- Authorized Person : It includes an authorized dealer, money changer, off-shore banking unit or any other person for the time being authorized to deal in foreign exchange,
- Capital Account Transaction : It means a transaction which alters the assets or liabilities outside India of persons resident in India. It also includes transactions that alters assets or liabilities in India of persons resident outside India.
- Currency : It is an assortment of currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers cheques, letter of credit, bills of exchange and promissory notes.
- Currency Notes : It includes cash in the form of coins and bank notes.
- Current Account Transactions : It means a transaction other than capital account transaction.
- Export : It simply means exporting of any goods or provision of services from India to any person outside India.
- Financial Transaction : It means making any payment to, or for the credit of any person, or receiving any payment for, by order or on behalf of any person, or drawing, issuing or negotiating any bill of exchange or promissory note, or transferring any security or acknowledging any debt.
- Foreign Currency : It denotes any currency other than the Indian currency.
- Foreign Exchange : Money instruments used to make payments between countries.
- Foreign Security : Any security in the form of shares, stocks, bonds, debentures or any other instrument denominated or expressed in foreign currency . It is only applicable where redemption or any form of return such as interest or dividends is payable in Indian currency.
- Import : It simply defines a process that facilitates bringing of goods or services into India.
- Indian Currency : Currency expressed in Indian rupee.
- Person : It includes an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals, whether incorporated or not, every artificial juridical person and any agency, office or branch owned or controlled by such person.
- Person Resident in India : He is a person who lives a minimum of 182 days in India during the preceding financial year.
- Repatriate to India : It means bringing into India the realized foreign exchange and selling of such foreign exchange to an authorized person in India.
- Security : It means shares, stocks, bonds and debentures, Government securities, savings certificates, deposit receipts in respect of deposits of securities and units of the Unit Trust of India or of any mutual fund and includes certificates of title to securities, but does not include bills of exchange or promissory notes other than Government promissory notes or any other instruments which may be notified by the Reserve Bank as security for the purposes of this Act .
- Service : It means service of any description which is made available to potential users and includes the provision of facilities in all terms.
- Transfer : It includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien.
Regulations and Management of Foreign Exchange
Without the permission of Reserve Bank of India no person can:
Powers of Reserve Bank of India
- Deal or transfer any foreign exchange or foreign security to any unauthorized person
- Make any payment in any manner to any person who resides outside India. No payments can even be made for the credit of the particular person.
- Receive any payment on behalf of a person residing outside India through an authorized person.
- Enter into any sort of financial transaction in India to acquire any asset outside India by any person.
- Acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.
Powers of Individual
- 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
- 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 by a person resident in India and owed to a person resident outside India or by a person resident outside India.
Export of Goods and Services
- 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.
- A person resident outside India may 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.
- Any person may sell or draw foreign exchange to or from an authorized person for a capital account transaction. For this RBI may specify the limit and class of transactions.
- Exporter should 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.
- RBI ensures the realization of the export proceeds by exporters, so the exporters shouls furnish to the bank all the relevant information required.
- Every exporter of services shall furnish to the Reserve Bank or to such other authorities a declaration in such form and in such manner as may be specified, containing the true and correct material particulars in relation to payment for such services.