Theory cksys rks---CA SUNNY JAIN

Foreign Exchange Management Act, 1999

Application
 Whole India.
+
 All Branch / Office / Agencies – outside India – owned or controlled by PRI
+
 Contravention by person Outside India – to whom this act applies.
Difference between FEMA & FERA

Basis FEMA FERA

1. Object Control Regulate + management

2. PRI Citizenship not criteria Citizenship is criteria

3. Structure Relaxed Prohibited

4. Nature of offence Civil wrong Criminal wrong

5. Compounding allowed Not Allowed.

Residential Status
Person resident in India – Means
1. Person residing in India > 182 days in PFY - but not include – person gone out of India.

2. But includes person – stay in India.

3. Body corporate – registered / incorporated in India.

4. B/O/A in India – owned / controlled by PROI
5. B/O/A outside India – owned / controlled by PRI
Current Account Transactions (other than capital a/c transaction) [Sec. 2(j) & Sec. 5]
 Withdrawal of FE for following purpose is Prohibited –
1. Remittance out of Lottery Winning.
2. Remittance of income from Racing / Riding.
3. Remittance for purchase of Lottery Tickets. Or prescribed magazines, football pools.

Theory will be Remember in SUNNY SIR Classes for CA-IPCC/FINAL 1

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4. Payment of commission on export toward – JV/WOS Outside India.
5. Remittance of Dividend by any company – Dividend Balancing is applicable.
6. Payment of commission on Export under Rupee State Credit Route.
7. Payment related to ‘Call Back Services’ of telephones.
8. Remittance of interest income on non-resident special rupees scheme account.
9. Payment for travel to – Nepal / Bhutan.
10. Transaction – Person resident in Nepal or Bhutan.
Withdrawal of FE for following purpose – Only with Permission of CG.
1. Cultural Tours.
2. Advertisement in foreign print media – other than for promotion of tourism, foreign investment &
international bidding By SG & its PSU – exceeding $ 10,000.
3. Remittance of freight of result – chartered by PSU.
4. Payment of Import via ocean transport by government department on C/F Basis.
5. Remittance do Agent Abroad by Multi Model transport operators.
6. Container Detention Charges – exceeding prescribed rate.
7. Prize money / Sponsorship of Sport Activity – Other than by International / National / State level Sport
body – exceeding $ 100,000.
8. Hiring charges of Transponder by TV channels & ISP.
9. Membership of P & I club.
No permission if – Payment via RFC a/c or EEFC.
Withdraw of FE for following purpose – Only with permission of RBI.
1. Consultancy service for Infra projects - > $ 1 crore / project.
Consultancy service for Other projects - > $ 10 lakh / project.
2. Private Visit to any country (Except Nepal / Bhutan) - $ 10000 / FY.
3. Gift > $ 5000 / FY.
4. Donation by Individual > $ 5000 / FY.
Donation by Corporate > 1% of their FE earning during 3 FY or $ 50,00,000 – (WL), for
 Creation of Chair in Reputed Educational Institute.
 To funds promoted by Educational Institutes.
 To Technical institute in field of activity of donor company.
5. Person going Out for Employment > $ 100,000.
6. Maintenance of Close Relatives abroad
 Exceeding net salary (after taxes) of person, who is resident but not permanently resident in
India; and
 Citizen of foreign country other than Pakistan or
 Citizen of India – deputation in India of foreign company.
 Other cases > $ 100,000.

Theory will be Remember in SUNNY SIR Classes for CA-IPCC/FINAL 2

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7. Exchange facility for Emigration > $ 100,000.
8. For business travel / attending conference / patient’s medical treatment or check / accompanying
attended > $ 25000.
9. Meeting Expense of Medical Treatment Abroad – Exceeding Estimate from doctor in India / abroad.
10. Studies Abroad – Exceeding estimate of institution Abroad or $ 100000 / academic year – (WH).
11. Commission for sale of residential flats or Commercial Plots in India to Agent abroad – 5% of inward
remittance or $ 25000, (WH).
12. Pre-incorporation Expenses – 5 % of Investment brought in India or & 100000 (WH).
No approval by RBI – If payment by RFC a/c.
Capital Account Transactions [Sec. 2(e) & 6]
Permissible Capital Account transaction
1. Payment due on account of Amortization of Loan.
2. PRI – deal in FE / Property situated outside India – if it was owned by such person when he was PROI
or inherited by PROI.
3. Foreign Currency Account by person when he was PROI.
4. Employment / gift / Investment / Inheritance – when such person was PROI.
5. FE acquired by inheritance by PRI from PROI.
6. PRI – use foreign assets / income on such assets / sale proceeds without RBI approval.
7. PROI deal in India currency / immovable property – owned by him when he was PRI / inherited from
PRI.
8. Transfer of immovable property in India, other than a lease not exceeding 5 years, by a person
resident outside India
9. Acquisition or transfer of immoveable property in india, other than a lease not exceeding 5 years by a
person resident outside India
Regulation on Capital Account Transaction
 Permissible capital a/c transaction of PRI.
 Permissible capital account transaction by PROI.
 Prohibited Capital account transactions
No PROI – Investment in India – in entity engaged in -
1. Chit fund
2. Nidhi fund
3. Agriculture or plantation activity.
4. Real estate business or construction of farm house.
5. Trading in transferable development rights.
Regulation and Management of Foreign Exchange [Sec. 3 & 4]
 Restriction U/s 3
a) No person – deal / transfer – FE – Except via AP.
b) No person – Make Payment – to / for PROI.

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c) No person – Receive Except via AP – Or from any person – on behalf of PROI.
d) No person – Enter into any Financial Transaction in India – as Consideration for Right to
Acquire – Any Asset Outside India.
 Relaxation

Authorized person [Sec. 10 to 12]

(Authorized dealer, money changer, off shore banking unit, person authorized u/s 10)
 Person – authorization by RBI – to dial in foreign exchange.
 Authorization in writing + subject to conditions.
 Revocation of authorization.

 Duties of authorized person

 Comply with RBI direction.
 Not engage – unlawful transaction.
 Ensure compliance of act.
 Report to RBI.
 Power of RBI (Sec. 11)

 Power of RBI to inspect AP (Sec. 12)

 Verify correctness of statement.
 Obtain information.
 Ensure compliance of act.
 AP duty bound – produce documents to RBI.
 Person acquiring FE – use for particular purpose only.
Export of goods & services [Sec. 2(l) & 7]
RBI’s right over the Exporter & Export Proceeds.
1. Furnish Declaration by exporter.
2. Furnish Information by exporter.
3. Issue of direction by RBI.

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 Theory cksys rks---CA SUNNY JAIN
4. Reasonable steps to Repatriate FE.
Exemption from Realization and Repatriation [Sec. 9]
 FE upto Limit – by RBI.
 Foreign currency account – limit specified by RBI.
 FE acquired before 8/7/1947 + income thereon.
 FE by gift or Inheritance – upto limit specified by RBI.
 FE by Employment, business, trade, services etc.
Regulation on Possession & Retention of foreign currency
Limit for possession and retention of foreign currency or foreign coins. [Regulation 3]
1. AP – without any limit.
2. Any person – foreign coins – without limit.
3. PRI – FC upto $ 2000 – provided.
a) Acquired while on visit outside India – not arising from business.
b) Acquired from PROI – or his visit to India – as gift / honorarium.
c) Acquired as gift honorarium – while visit outside India.
d) Unspent amount out of FE acquired from AP to travel abroad.
Possession of FE by PRI but not permanently resident therein [Regulation 4]
PRI but not permanently resident in India – hold FC – without limit if it was hold / acquired when he was
PROI.
Adjudicating authority [Sec. 16]
 Means Officers Authorized u/s 16(1)
 Appointment of Adjudicating Authority.
1. For Adjudication + Imposing Penalties – CG appoint certain Officers – to hold inquiries – if
contravention under the act.
2. CG – Specify Jurisdiction of Adjudicating Authorities.

Penalties are covered under Sec 13

Procedure for adjudication under Sec 14 & 16

Compounding of contravention can be done as per Sec. 15

Appeal to Special Director (Appeals) [Sec. 17]

 CG Appoint – hear Appeals against order to adjudicating authorities.
 Person Aggrieved from order of Adjudicating Authority – appeal to Special Director (appeals)
 Appeal to SD(A) – if AA is
 Assistant director of enforcement or
 Deputy director of enforcement or
 Appeal within 45 days.

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 No time limit for disposal.
Appeal to Appellate Tribunal [Sec. 19]
 CG Appoint – hear Appeal against order of Adjudicating Authority + SD(A).
 CG / Any person – Appeal to Appellate Tribunal.
 Appeal if – Order passed by
 Special director (appeals); or
 Adjudicating Authority other than assistant.
 Director of Enforcement or deputy director of enforcement.
Appeal to High Court under Sec 35
 Against an order of AT.
 Appeal filed only question of law.
 Appeal filed within 60 days.
 Appeal by C.G.

Powers of Special Director (Appeals) and Appellate Tribunal under Sec 28

Jurisdiction of Civil Court barred under Sec 34

Contravention by Companies under Sec 42

Theory will be Remember in SUNNY SIR Classes for CA-IPCC/FINAL 6