Transcript of "Fera and fema"

1. 1. F.E.R.A . AND F.E.M.A.(FOREIGN EXCHANGE REGULATION

ACT AND FOREIGN EXCHANGE MANAGEMENT ACT)Presented by
:-Nikhil AgarwalNeha GargNeha BaliwalMegha SinghMegha
mahasvariNavdeep KaurMohit GoyalNikhil ChaddaNitin
SachdevMohit Badera
2. 2. Historical Background :Historical Background The Foreign
ExchangeRegulation Act of 1973 (FERA) Enacted in 1973In the
backdrop of acute shortage of ForeignExchange in the country.
FERA had a controversial 27 year stint duringwhich many bosses of
the Indian Corporate worldfound themselves at the mercy of
theEnforcement Directorate (E.D.).
3. 3. Foreign Exchange Regulation Act The Foreign Exchange
Regulation Act (FERA) was legislation passed by the Indian
Parliament in 1973 by the government of Indira Gandhi It came into
force with effect from January 1, 1974. FERA imposed stringent
regulations on certain kinds of payments. It deals in foreign
exchange and securities and the transactions which had an indirect
impact on the foreign exchange and the import and export of
currency. The purpose of the act, inter alia, was to "regulate certain

payments, dealings in foreign exchange and securities, transactions

indirectly affecting foreign exchange and the import and export of
currency, for the conservation of foreign exchange resources of the
country". FERA was repealed in 1999 by the government of Atal
Bihari Vajpayee. It replaced by the Foreign Exchange Management
Act,which liberalised foreign exchange controls and restrictions on
foreign investment.
4. 4. Foreign Exchange Management Act The Foreign Exchange
Management Act(FEMA) was an act passed in the winter session of
Parliament in 1999 which replaced Foreign Exchange Regulation
Act. This act seeks to make offenses related to foreign exchange civil
offenses. It extends to the whole of India. FEMA, which replaced
Foreign Exchange Regulation Act(FERA). It had become the need of
the hour since FERA had become incompatible with the proliberalisation policies of the Government of India. FEMA has brought
a new management regime of Foreign Exchange consistent with the
emerging framework of the World Trade Organisation(WTO). It is
another matter that the enactment of FEMA also brought with it the
Prevention of Money Laundering Act 2002, which came into effect
from 1 July 2005.

5. 5. Objective Of F.E.R.A &F.E.MA 1) To help RBI in maintaining

exchange rate stability. 2) To conserve precious foreign exchange.
3) To prevent/regulate Foreign business in India. 4) To consolidate
and amend the law relating to foreign exchange with the object to
facilitating external trade and payments and for promoting the foreign
exchange market in India. 5) So the new law is for the management
of foreign exchange instead of regulation of foreign exchange. 6) The
draconian provisions were droped out in new enactment. 7) The size
of the bare act got reduced to 49 sections in place of 81 sections in
FERA
6. 6. 9) To promote the orderly development and maintenance of
foreign exchange market 8) To facilitate external trade and
paymentsObjectives
7. 7. DIFFERENCE BETWEEN FERA AND FEMA :1)-The objective of
FERA was to conserve forex and to prevent its misuse. The objective
of FEMA is to facilitate external trade and payments and maintenance
of forex market in india.
8. 8. 2-Violation of FERA was a criminal offence whereas violation of
FEMA is a civil offence.3- Offences under FERA were not
compoundable Offences under FEMA are compoundable.4Citizenship was a criteria to determine the residential status of a

person underFERA. while stay of more than 182 days in India is the
criteria to decide residential status under FEMA.5- Almost all current
account transactions are free, except a few.
9. 9. FERA & FEMA Object to conserve and To facilitate external
prevent misuse trade and payments Violation was Criminal
Violation is a civil Offence and was non offence and is compoundable
compoundable It was a draconian It is a civil law police law 9
10.

10. Current Account and Capital Account transactionsUnder the

FEMA regime, the thrust was on regulationand control of the scarce

foreign exchange, whereasunder the FEMA, the emphasis is on the
managementof foreign exchange resources.Under FERA it was safe
to presume that anytransaction in foreign exchange or with a nonresidentwas prohibited unless it was generally or
speciallypermitted.FEMA has formally recognised the distinction
betweencurrent account and capital account transactions.
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11. all capital account transactions are prohibited unless

otherwise permitted. all current account transactions are permitted

unless otherwise prohibited. Two golden rules or principles in FEMA
are mentioned as follows:
12.

12. Current Account Transactions Any person may sell or draw

foreign exchange to or from an authorized person if such sale or

drawal is a current account transaction. The Central Government

may, in public interest and in consultation with the Reserve Bank,
impose such reasonable restrictions for current account transactions
as may be required from time to time. 12
13.

13. Current Account Transactions Contd. The definition is

inclusive and any expenditure which is not a capital account

transaction will be current account transaction. It includes: payments
due in connection with foreign trade, other current business, services,
and short-term banking and credit facilities in the ordinary course of
business payments due as interest on loans and as net income from
investments remittances for living expenses of parents, spouse and
children residing abroad, and expenses in connection with foreign
travel, education and medical care of parents, spouse and children 13
14.

14. Current Account Transactions Few Examples Payment for

imports of goods Remittance of interest on investment made and

funds borrowed from abroad after tax deductions Remittance of
Dividend if the investment was allowed without any condition
Booking with Airlines/Shipping Salary/remuneration to Foreign
Directors subject to restrictions in any other law 14
15.

15. Capital Account Transactions "capital account transaction"

means a transaction which alters the assets or liabilities, including

contingent liabilities, outside India of persons resident in India or

assets or liabilities in India of persons resident outside India, and
includes transactions like: Changes in Assets/ Liabilities Transfer/
issue of security Borrowing/ Lending Export, import or holding of
currency or currency notes Giving guarantee Capital Account
Transaction are deemed to be prohibited unless permitted and
Current Account Transactions are deemed to be permitted unless
prohibited 15
16.

16. Penalties for Contravention under FEMA The Penalty could

be up to thrice the sum involved where amount is quantifiable If the

Amount is not quantifiable , penalty upto Rs 2 lacs can be imposed If
contravention is of continuing nature, further penalty up to Rs 5000
per day during which the contravention continues can be imposed 16
17.

17. RepatriationRepatriate to India" means bringing into India

the realized foreign exchange and- the selling of such foreign

exchange to an authorized person in India in exchange for rupees, or
the holding of realized amount in an account with an authorized
person in India to the extent notified by the Reserve Bank, It includes
use of the realized amount for discharge of a debt or liability
denominated in foreign exchange 17

18.

18. Manner of RepatriationIt can be done in the following

manner: Sell it to Authorized Person in India in exchange for

Rupees Retain in an account with an authorized dealer Use it for
discharge of a debt or liability denominated in foreign exchange in the
manner specified by RBI 18
19.

19. Administration Of The Act- The rules regulations and norms

pertaining to many sections are laid down by RBI in consultation with

central Government.- The Act requires central Government to
appoint, Adjudicating Authorities for holding enquires related to the
contravention of the Act one or more Special Directors (appeals) to
hear appeals against the order of the Adjudicating authorities- Central
Government shall have to establish1. An Appellate Tribunal for foreign
Exchange to hear appeals against the order of the Adjudicating
Authorities and the Special Directors2. A Director of Enforcement with
a Director and such officers or class of officers as it thinks fit for
taking up for investigation the contravention under this Act
20.

20. Every exporter of goods shall:(a) Furnish to the Reserve

bank or to such other authority a declaration in such form as may be

specified, containing true and correct material, including the amount
representing the full export value, if the full export value of goods is
not ascertainable at the time of export , the value which the exporter,

having in regard to the prevailing market conditions, expects to

receive on the sale of the goods in the market outside India;(b)
Furnish to the Reserve bank all information as may be required by the
reserve bank for the purpose of ensuring the realization of export
proceeds by such exporter.Export of goods and services
21.

21. Every exporter of services shall furnish to the Reserve

bank a declaration in such form as may be specified, containing the

true and correct material particulars in relation to payment for such
services. The Reserve may, for the purpose of ensuring that the full
export value of the goods as the Reserve bank determines, having
regard to the prevailing market conditions, is received without any
delay.
22.

22. Realization and Repatriation of Foreign ExchangeWhen any

amount of foreign exchange is due or hasaccrued to any person shall

take all reasonable steps torealize and repatriate to India such foreign
exchangewithin such period and in such manner as may bespecified
by the Reserve bank.
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23. THANK YOU