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FEMA(FOREIGN EXCHANGEMANAGEMENT ACT. 1999)

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LETS KNOW.. FEMA

Foreign Exchange Management Act or in short (FEMA)is an act that provides guidelines for the free flow offoreign exchange in India. It has brought a newmanagement regime of foreign exchange consistent withthe emerging frame work of the World TradeOrganisation (WTO). Foreign Exchange Management Act was earlier known as FERA (Foreign ExchangeRegulation Act), which has been found to be unsuccessful with the proliberalisation policies of the Government ofIndia.

FEMA is applicable in all over India and even branches,offices and agencies located outside India, if it belongs toa person who is a resident of India.

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OBJECTIVES

To help RBI in maintaining exchange rate stability.

To conserve precious foreign exchange.

To prevent/regulate Foreign business in India.

Citizenship was a criteria to determine the residential

status of a person under FERA,while stay of more than 182days in India is the criteria to decide residential statusunder FEMA.

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So the new law is for the management of foreign exchangeinstead of regulation of foreign exchange.

The draconian provisions were dropped out in newenactment.

To facilitate external trade and payments

To promote the orderly development and maintenance offoreign exchange market

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SALIENT FEATURES

It prohibits foreign exchange dealing undertaken otherthan an authorised person

It also makes it clear that if any person residing in India,received any Forex payment (without there being acorresponding inward remittance from abroad) theconcerned person shall be deemed to have received theypayment from a unauthorised person.

There are 7 types of current account transactions, which aretotally prohibited, and therefore no transaction can beundertaken relating to them. These include transactionrelating to lotteries, football pools, banned magazines and afew others.

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FEMA and the related rules give full freedom to Resident ofIndia (ROI) to hold or own or transfer any foreign securityor immovable property situated outside India.

Similar freedom is also given to a resident who inheritssuch security or immovable property from an ROI.

An ROI is permitted to hold shares, securities andproperties acquired by him while he was a Resident orinherited such properties from a Resident.

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The exchange drawn can also be used for purpose otherthan for which it is drawn provided drawl of exchange isotherwise permitted for such purpose.

Certain prescribed limits have been substantially enhanced.For instance, residence now going abroad for businesspurpose or for participating in conferences seminars willnot need the RBI's permission to avail foreign exchange up

to US$. 25,000 per trip irrespective of the period of stay, basic travel quota has been increased from the existing US$3,000 to US$ 5,000 per calendar year.

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2 GOLDEN RULES

Two golden rules or principles in FEMA are :

All current account transactions are permitted unlessotherwise prohibited.

all capital account transactions are prohibited unlessotherwise permitted.