FOREIGN EXCHANGE

MANAGEMENT ACT, 1999

QUICK FACTS
• What is FEMA?
• It is a set of regulations that empowers the
Reserve Bank of India to pass regulations and
enables the Government of India to pass rules
relating to foreign exchange in tune with the
foreign trade policy of India.

• Which Act did FEMA replace?

• FEMA replaced an act called Foreign Exchange
Regulation Act (FERA).
CONTD.
• What is FERA and when was it passed?
• FERA (Foreign Exchange Regulation Act) legislation
was passed in 1973. It came into effect on January 1,
1974. FERA was passed to regulate the financial
transactions concerning foreign exchange and
securities. FERA was introduced when the Forex
reserves of the country were very low.

• Why was FERA replaced?

• FERA did not comply with the post-liberalization
policies of the Government.
BACKGROUND
• Foreign Exchange Regulation Act, 1973 (FERA)
was replaced by the Foreign Management Act,
1999 (FEMA).
• FEMA was enacted by Parliament of India and it
came into force on 1st June, 2000.
• The reason for the replacement emerged because
it was not suitable for the prevailing
environment and was harsh as it contained a
provision for imprisonment.
• On the other hand, FEMA was introduced with
the changes because of the new, liberal and
changing environment.
• Also, earlier FERA was passed due to the
insufficient foreign exchange in the country and
FEMA was passed with the objective to relax the
controls on foreign exchange in India.
• The head office of FEMA is situated in New
Delhi known as Enforcement Directorate and is
headed by a Director.
OBJECTIVES

• To reinforce and amend the law relating to foreign

exchange.
• To simplify and ease the external trade and payments.
• To promote the systematized development and
maintenance of a healthy foreign exchange market in
India.
• To remove disparity of payments.
• To control and direct the employment business and
investment of the non-residents.
• To utilise the foreign exchange resources effectively for
the country.
FEATURES
• FEMA does not apply to the Indian citizens who resides outside
India. This criteria is checked by the number of days a person
stays in India for more than 182 days in the preceding financial
year.
• Central Government has the authority given by FEMA to
impose restrictions on and supervise three things which are-
payments made to any person outside India or receipts from
them, forex and foreign security deals.
• It specified the areas for holding of forex that required specific
permission of the Reserve Bank of India (RBI) or the
government.
• FEMA classified the transaction into a current and capital
account.
APPLICABILITY OF FEMA ACT
FEMA is applicable to:

• Foreign exchange.
• Foreign security.
• Exportation of any commodity and/or service from India to a
country outside India.
• Importation of any commodity and/or services from outside India.
• Securities as defined under Public Debt Act 1994.
• Purchase, sale and exchange of any kind (i.e. Transfer).
• Banking, financial and insurance services.
• Any overseas company owned by an NRI (Non-Resident Indian)
and the owner is 60% or more.
• Any citizen of India, residing in the country or outside (NRI).