FOREIGN EXCHANGE MANAGEMENT ACT, FEMA

AN OVERVIEW

 FEMA is a civil law unlike FERA. Contravention under FEMA will be dealt with through
civil procedures. Unlike in FERA, the burden of proof under FEMA will be on the
enforcement agency and not on the implicated. FEMA describes an elaborate
redressal machinery for total justice and fairness to the implicated while deciding on
the question of contravention.
 FEMA prohibits foreign exchange dealings undertaken other than through an
‘Authorized Person’. (Section 10). It also makes it clear that if any person residing
in India receives any forex payment (without there being a corresponding inward
remittance from abroad), the concerned person shall be deemed to have received
the payment from a non-authorized person.
 All outward remittances are grouped into three schedules. Schedule I contains
certain forex remittances which are totally prohibited under FEMA. Some
transactions cannot be done without prior approval of Government of India and
these are contained in Schedule II. Certain forex remittances (up to the specified
limit prescribed from time to time) can be done through an ‘Authorized Person’
without prior approval of the Reserve Bank of India (RBI) and these are contained
in Schedule III.
 Presently, there are 8 types of current account transactions (remittances), which
are prohibited (Schedule I), and therefore no transaction can be undertaken
relating to these.
 These are as under:
▪ Remittance out of lottery winnings.
▪ Remittance of income from racing/riding etc. or any other hobby.
▪ Remittance for purchase of lottery tickets, banned/proscribed magazines,
football pools, sweepstakes, etc.
▪ Payment of commission on exports made towards equity investment in Joint
Ventures/Wholly Owned Subsidiaries abroad of Indian companies.

▪ Remittance of dividend by any company to which the requirement of

dividend balancing is applicable.
▪ Payment of commission on exports under Rupee State Credit Route.
▪ Payment related to “Call Back Services” of telephones.
▪ Remittance of interest income on funds held in Non-Resident Special Rupee
(Account) Scheme.
 Under the Liberalised Remittance Scheme (LRS), Authorised Dealers may freely allow
remittances by resident individuals up to USD 250,000 per financial year, for any
permitted current or capital account transaction or a combination of both. The
Scheme is not available to corporates, partnership firms, HUF, Trusts, etc.
 The limit of USD 250,000 per financial year (FY) under the LRS also
includes/subsumes remittances for current account transactions (namely, private
visit; gift/donation; going abroad on employment; emigration; maintenance of
close relatives abroad; business trip; medical treatment abroad; studies abroad)
available to resident individuals under Para 1 of Schedule III to Foreign Exchange
Management (Current Account Transactions) Amendment Rules, 2015 dated May
26, 2015. Release of foreign exchange exceeding USD 2,50,000, requires prior
permission from the RBI.
 EEFC and RFC account holders are permitted to freely use the funds held in the
accounts for payment of all permissible current account transactions.
 The rules for foreign investment in India and Indian investment abroad are also
comprehensive, transparent and permit Indian companies engaged in certain
specified sectors to acquire shares of foreign companies engaged in similar activities
by share swap or exchange through issue of ADRs/ GDRs up to certain specified
limits.

 Contraventions and penalties are covered by Sections 13 to 15 of FEMA.

 As per Section 13, If any person contravenes any provision of FEMA, or contravenes
any rule, regulation, notification, direction of FEMA, he will be liable to a penalty up to
three times the sum involved in such contravention where such amount is quantifiable,
or up to Rs 2 lakhs where the amount is not quantifiable.
 If the contravention is a continuing one, further penalty is leviable, which may extend
to Rs 5,000 for every day of the continuing contravention.

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