Foreign Exchange Management Act – FEMA

Have you ever think why the government required foreign currency when the people are even now inhabiting India? Let’s understand this with the help of an exemplar if a person is living in India and wants to go foreign for any motive of the job, traveling, education, relocation or any other reasons require foreign currency. Foreign Exchange Regulation Act, 1973 (FERA) was put back by the Foreign Management Act, 1999 (FEMA). FEMA was validated by the Parliament of India and it came into effect on 1st June 2000.

Comparably, if a person living outside India and for alike purposes wants to come here then the person requires Indian currencies. If an Indian resident goes abroad then i.e. outpouring of the foreign currency and the person coming to India then that is the inpouring of the foreign currency. To survive and balance this inpouring and outpouring of the foreign currency is the main purpose.

RBI is the governing command for this management. For this reason, this Act is known as Foreign Exchange Management Act, 1999.

There is a total of 49 Sections split into 7 chapters. The main reason for the replacement appeared because it was not appropriate for the persuading environment and was strident as it contains a furnishing for incarceration.

Objectives of FEMA

The main motive of FEMA was to assist smooth exterior trade and remittances in India. It was also meant to assist the orderly development and preservation of the foreign exchange market in India. It determines the process, formalities, dealings of all foreign exchange proceedings in India.

These transactions are mostly classified into two categories — Current Account Transactions and Capital Account Transactions. FEMA is appropriate to all parts of India and was primarily prepared to make use of foreign exchange resources ineffective manner.

It is also equitably appropriate to the offices and agencies which are situated outside India though are controlled or possess by an Indian Citizen. FEMA head office is called as Enforcement Directorate and it is located in heart of the city of Delhi.

Applicability of FEMA Act

FEMA (Foreign Exchange Management Act) is appropriate to the whole of India and equitably applicable to the agencies and offices situated outside India (which are possessed or managed by an Indian Citizen).

The head office of FEMA is located in New Delhi and called as Enforcement Directorate. FEMA is relevant to:

• Foreign exchange.
• Foreign security.
• Transportation of any artifact or service from India to any country outside India.
• Incoming of any artifact or services from outside India.
• Securities as explained below Public Debt Act 1994.
• Purchase, sale, and exchange of any kind of Transfer.
• Banking, financial, and insurance services.
• Any foreign company is owned by an NRI (Non-Resident Indian) and the owner is 60% or more than this.
• Any citizen of India, living in the country or outside (NRI).

The Current Account proceedings under the FEMA Act has been classified into 3 segments, namely

• Proceedings prohibited by FEMA,
• The proceeding NEEDs Central Government’s permission,
• The proceeding needs RBI’s permission.

Prohibiting on Drawal of Foreign Exchange

The FEMA prohibits the drawal of abroad exchange in the following definite situations:

1. Revenue out of winning a lottery.
2. Payments from the income of racing or riding etc. 
3. A proceeding with a resident of Bhutan or Nepal is also proscribed.
4. Payment regarding “Call back Services” of telephones.
5. Travel to Bhutan or Nepal.
6. Any payment for buying a lottery ticket, football pools, sweepstakes, stipulate magazines, etc.
7. The commission payment on exports regarding equity investment of Indian Companies in Joint proceeds or wholly-owned subdivisions abroad.
8. Payment of donative by any company provided the requirement of dividend balancing is appropriate.
9. The commission payment on transporting under Rupees State Credit Routes excluding commission up to 10% of the invoice value of transport of tea and tobacco.
10. Payment of interest income on funds held in Non-resident Special Rupees Scheme account (NRSR account).

Route for Drawal of Foreign Exchange

As affirmed by the Reserve Bank of India, Foreign Exchange can be drawn from an approved dealer by the General Permission Route or Prior Approval Route 

Transactions for which Central Government previous undertaking is required for Drone of foreign exchange –

• The announcement in print media of a foreign country for any motive other than encouraging tourism, international auction, and foreign investments (exceedingly 10000 US Dollar) by a State Government and its Public Sector Units.
• Remittance of import by a Public Sector Unit or a subsection of government on c.i.f. basis only for importation by ocean transport.
• Remittance of freight of vessels chartered.
• Payment of incarceration charges of container exceedingly the DGS’s (Director General of Shipping) stipulate rate.
• Payment of Prize money/sponsorship of any other activity of sport outside India by a person other than national/ international/lower level sports bodies, if the sum of the prize money/patronage exceeds 1,00,000 US Dollars.
• Remittance of hiring charges of transponders.
• Internet Service Providers.
• TV channels.
• Remittance for P&I Club ministry’s membership.
• Payment by Multi-model transport operatives to their agents in foreign.

Restrictions on dealing in Foreign Exchange

Reductions on dealing in Foreign exchange are mentioned under Section 3 of the Act, the Section reads as-

1. Other than an authorized person no person can deal in or transfer any foreign exchange or foreign security to any person.
2. In any approach, a person should not make any payment to or for the credit of any person inhabitant outside India.
3. Only an approved person can receive any payment by order or in favor of any person inhabitant outside India.

Further, Section 4 of the Act express that no person resident in India shall obtain, hold, own, take over or transmit any foreign exchange, foreign security, or any unwavering property located outside India.

Infringements and Penalties

If any person violates any amenities, rule, order, regulation, or directions of this Act. The person will be responsible to pay the fine for that infringement and triple the amount which is given in the Act where the transgression is measurable or up to two lakh rupees where the amount can’t be measured.

Also where such infringement is a continuing one then a further penalty will be expanded to five thousand rupees per day.

Any Arbitrate Authority adjudging any infringement and if he thinks fit or is satisfied with the contravention done then in addition to any other penalty he may direct the party who is accountable for this contravention, that any currency, property, security or money in respect of which the contravention has taken place might be expropriated to the Central Government and farther direct that if there are any foreign exchange possessions of the persons committing the infringements must be brought back into India or must be retained outside India in line with the directions made in this behalf.

FEMA is appropriate to the whole of India and equitably applicable to the agencies and offices situated outside India. 

If any person failed to make full payment of the penalty capitalize on him within a period of ninety days from the date on which the notice for remittance of such penalty is served on him, he might be responsible for civil incarceration.

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