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), had become the need of the hour since FERA had become incompatible with the pro-liberalisation policies of theGovernment 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. Unlike other laws where everything is permitted unless specifically prohibited, under this act everything was prohibited unless specifically permitted. Hence the tenor and tone of the Act was very drastic. It required imprisonment even for minor offences. Under FERA a person was presumed guilty unless he proved himself innocent, whereas under other laws a person is presumed innocent unless he is proven guilty.

Definition of FEMA 2000

FEMA 2000 means Foreign exchange management Act 2000. Foreign exchange management act 2000 is very helpful law for development of foreign exchange market in India. It was passed in 1999 and came into effect from June 1, 2000 to entire country. After this foreign exchange regulation act ( FERA ) 1973 was closed . FEMA was most suitable for India corporate sector instead of FERA because almost all strict regulations of FERA were removed in FEMA .

Objectives of FEMA

1. Main objective of apply FEMA is to reduce the restriction on foreign exchange . Now , any offense in foreign exchange will be civil offense not criminal offense . 2. This law's main objective is to increase the flow of foreign exchange in India. Now , under this law , you can bring foreign currency in India without any legal barrier .

Provision /Rules / Regulation of FEMA

1. Provision regarding dealing in foreign exchange :-

According to section 3 of FEMA 2000 ," only authorized person under the govt. terms can deal in foreign exchange in India . "

2. Provision regarding holding of foreign exchange :-

According to section 4 of FEMA 2000, " All persons which are provided authority only can hold or purchase foreign exchange in India or outside India."

3.Provision regarding current account transactions :-

According to section 5 of FEMA 2000 ," There is no restriction regarding sale or deal foreign exchange , if it is a current account transaction ."

The following transaction are deemed current account transactions under FEMA :-

a) Expenses in connection with foreign travel , education and medical care of parents , spouse and children ( Any body now can send the foreign currency in India for above expenses under current account ) b) Payment due as interest on loan c) Payment due under short term loan for business .

4. Provision regarding capital account transactions :-

Under section six ," RBI will fix the limit of foreign exchange transactions relating to capital account after discussion with Indian govt. "

RBI can restrict following :-

a) transfer of foreign security by Indian resident . b) transfer of foreign security by Indian resident which is now outside India . c) transfer of immovable property .

5. Provision regarding export of goods and services :-

According to section 7 of FEMA 2000 , " It is the duty of exporter to declare the true and correct detail of goods which , he have to sell the market outside India and must send complete report to RBI .

RBI can make particular requirement for any exporter .

RBI can also make rules and regulations for realization of amount earned from foreign country.

6. Provision regarding authorised persons :-

RBI can authorize any body who can deal in money exchange or off shore transaction and foreign exchange .

He has to follow the rules and guidelines of RBI . RBI can revoke the authorisation granted to any person at any time in public interest . If authorized person will be done contravention the rules of RBI , he will be liable to pay up to Rs. 10000 penalty and Rs. 2000 for every day during which such contravention continue . 7. Provision regarding contravention and penalties :Section 13 to 15 If any body or person contravenes the rules and regulation of FEMA 2000 or RBI direction , he will be liable to a penalty three times of sum involved in contravention . If contravention will continue , then he will pay upto Rs. 5000 per day during the time of contravention . 8. Provision regarding adjucation and appeal :According to section 18, " Central govt. can appoint adjudicating authority who can give the punishment of civil imprisonment of maximum six months if case is less than one crore . If demanded value is more than one crore then punishment of imprisonment may be of three years . the person can appeal to special director against the decisions of adjudicating officer . He can also appeal in appellate tribunal and also in high court with the sixty days of communication of order .

Important provisions From FEMA Relenant Provisions Of Exchange Control Manual For The Purpose Of FEMA Some of the relevant provisions of Exchange Control Manual under FEMA, which are still existing are: 1. Refund Of Inward Remittances If a request is made from the overseas for cancellation of Inward Remittances, Authorised Dealers may do so without referring to Reserve Bank, if refunds is not to compensate for a loss. 2. Application For Remittances In Foreign Currency o A person firm or bank may apply to an Authorised Dealer for remittances in any foreign currency to a beneficiary abroad. o Application should be made in FORM -A1, if the purpose of remittance is import of goods into India. o For any other purpose in Form -A2 o The Authorised Dealer may sell the foreign Exchange applied for if he think fit provided it is within his powers, and the purpose of remittance is an approved one. 3. Mode Of Payment Of Rupees Against Sale Of Foreign Exchange In case of sale of foreign Exchange or remittance foreign Exchange amounting to Rs. 20,000 or more the payment received by the Authorised Dealer, from the applicant should be through a crossed cheque drawn on the applicant bank account or on the bank account of the Firm/ Company. Payment can also be accepted in the form of a Banker's cheque / Pay Order / Demand Draft. Receipt of Payment in cash in case of such sale of foreign Exchange or remittance in foreign Exchange is strictly prohibited. Exception: However where purpose of sale of foreign exchange is for travel abroad for business etc, cash may be received by Authorised Dealer from Applicant upto Rs. 50,000/Where the rupee equivalent for drawing foreign exchange exceeds Rs. 50,000 either for any single installment or for more than one installment recokned--- together for a single journey / visit it should be paid by the traveler by means of a gross cheque / demand draft/ pay order as stated above. 4. Travellers Cheque Negotiable Only In India Rupee Travellers cheque cannot be encashed outside India, if they are issued solely for use within India. In such a case they cannot be taken or sent out of India. Reimbursements should be strictly refused where such travellers cheques have been encashed outside India. 5. Reimbursement Outside India Rupee Travellers cheque, which are issued by authorised dealers, encashable outside India, may be reimbursed by Authorised Dealers or by their selling Agent.

6. Import Of Foreign Currency Notes When the stock of foreign currency notes with Authorised Dealer is not adequate for meeting their normal business requirement they could import foreign currency notes from their overseas branches or correspondents. 7. Reconversion Of Indian Currency o Foreign currency may be sold against Indian Rupees held by persons who are not resident of India but are passing through or leaving India after a visit, at the time of their departure from India. o For this purpose, a Bank or Encashment certificate issued by Authorised Dealer, exchange bureau or Authorised Money changer in form BCI, ECF OR ECR, is required to show that the rupee had been acquired by sale of foreign Exchange to an Authorised Dealer or money changer in India. o Such a certificate is valid for such reconversion i.e. a period of three months is not over from the date of sale of the foreign currency by the traveller. 8. Rates Of Exchange Authorised dealers and their Exchange bureau may buy from and sell to public foreign currency notes and coins at rates of exchange determined by market conditions. Dealings in foreign currency notes and coins between authorised dealers and between authorised dealers and money changers would also be at rates determined by market conditions.