F.E.R.A . AND F.E.M.A.

(FOREIGN EXCHANGE REGULATION ACT AND

FOREIGN EXCHANGE MANAGEMENT ACT)
Presented by :Nikhil Agarwal
Neha Garg
Neha Baliwal
Megha Singh
Megha mahasvari
Navdeep Kaur
Mohit Goyal
Nikhil Chadda
Nitin Sachdev
Mohit Badera

Historical Background :
Historical Background The Foreign
Exchange Regulation Act of 1973 (FERA)
Enacted in 1973
In the backdrop of acute shortage of
Foreign Exchange in the country.
FERA had a controversial 27 year stint
during
which many bosses of the
Indian Corporate world found
themselves at the mercy of the
Enforcement Directorate (E.D.).

Foreign Exchange
Regulation Act

TheForeign Exchange Regulation Act(FERA) was legislation passed

by theIndian Parliamentin 1973 by the government ofIndira 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FERA was repealed in 1999 by the government ofAtal Bihari
Vajpayee.
It replaced by theForeign Exchange Management Act,which
liberalisedforeign exchange controlsand restrictions on foreign
investment.

Foreign Exchange
Management Act
TheForeign Exchange Management Act(FEMA) was an act

passed in the winter session of Parliament in 1999 which

replacedForeign Exchange Regulation Act.
This act seeks to make offenses related to foreign
exchangecivil offenses.
It extends to the whole ofIndia.
FEMA, which replacedForeign Exchange Regulation Act(FERA).
It 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
theWorld Trade Organisation(WTO).
It is another matter that the enactment of FEMA also brought
with it thePrevention of Money Laundering Act 2002, which
came into effect from 1 July 2005.

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

Objectives
8) To facilitate external trade and
payments
9) To promote the orderly
development and maintenance of
foreign exchange market

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.

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.
4- Citizenship 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.

FERA & FEMA

Object to conserve
facilitate
and
prevent To
external trade and
misuse
payments
Violation
was
Criminal
Offence Violation is a civil
offence and is
and
was
non
compoundable
compoundable
It was a draconian It is a civil law
police law
9

Current Account and Capital

Account transactions
Under the FEMA regime, the thrust was on
regulation and control of the scarce foreign
exchange, whereas under the FEMA, the emphasis is
on the management of foreign exchange resources.
Under FERA it was safe to presume that any
transaction in foreign exchange or with a nonresident was prohibited unless it was generally or
specially permitted.
FEMA has formally recognised the distinction
between current account and capital account
transactions.

 Two golden rules or principles in FEMA are

mentioned as follows:
all current account transactions are
permitted unless otherwise prohibited.
all capital account transactions are
prohibited unless otherwise permitted.

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

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

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

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

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

Repatriation
Repatriate 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

Manner of Repatriation
It can be done in the following manner:
Sell it to Authorized
exchange for Rupees

Person

in

India

in

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

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 establish
1. An Appellate Tribunal for foreign Exchange to hear
appeals against the order of the Adjudicating
Authorities and the Special Directors
2. A Director of Enforcement with a Director and such

Export of goods and services

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

 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.
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.

Realization and Repatriation

of Foreign Exchange
When any amount of foreign exchange is due
or has accrued to any person shall take all
reasonable steps to realize and repatriate to
India such foreign exchange within such
period and in such manner as may be
specified by the Reserve bank.

THANK YOU