Features - Foreign Exchange Management Act (2000), Business Law | Business Law - B Com PDF Download

Popularly known as FEMA – the Act is the Bible of all Forex transactions that happen in the country – it is the Holy Rule Book of foreign exchange transactions and of the administration part too.

It is important here to know a little history of FEMA:

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.

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:

1. FEMA is applicable to Individuals (you and me!), HUFs, companies, firms and AOPs and BOIs.

2. 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.

3. Under FEMA – a person, who has been residing in India for more than 182 days, will be considered a ‘Resident’!

4. ‘Currency’ under FEMA includes debit cards, ATM cards and credit cards too!

5. FEMA treats offences committed under the Act as civil offences.

6. 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.

7. 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!

8. Any monetary transaction with Nepal or Bhutan – in rupees – these two countires recognize and accept ‘Rupees’ – will not fall under FEMA!

9. ‘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!
 NO restrictions on forex transaction for repayment of loans – important to know!

10. ‘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.
 (I’m listing the absolutely important points to remember here.)

• Prohibited Current Account transactions (V.Imp!!!!) – you can’t draw foreign exchange for:-

1. 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:

1. 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:-

1. 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.
4. 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.