Foreign Exchange

Management Act, 1999

Background
Replaced FERA Foreign Exchange Regulation Act 1974

FERA had become incompatible with the pro-liberalisation
policies of the Govt. of India

This was done in order to relax the controls on foreign
exchange in India, as a result of economic liberalization.

FEMA served to make transactions for external trade (exports
and imports) easier transactions involving current account
for external trade no longer required RBIs permission.
FERA vs FEMA
The objective of FERA was to conserve forex and prevent its
misuse. The objective of FEMA is to facilitate external trade
and payments and maintenance of foreign exchange in India.

Violation of FERA was considered a criminal offence.
Whereas violation of FEMA was considered a civil offence.

Under FERA citizenship was a criteria while determining a
person as resident of India whereas under FEMA stay of
more than 182 days is a criteria to determine residential
status of a person.

Objectives of the Act

Facilitating external trade

For promoting the orderly
development and maintenance of
foreign exchange market in India.
Few Definitions
"authorized person" means an authorized dealer, money
changer, off-shore banking unit or any other person for the
time being authorized under sub-section (1) of section 10 to
deal in foreign exchange or foreign securities;

"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 referred to in sub-section (3) of section
6;

"currency" includes all currency notes, postal notes, postal
orders, money orders, cheques, drafts, travelers cheques,
letters of credit, bills of exchange and promissory notes, credit
cards or such other similar instruments, as may be notified by
the Reserve Bank;

"currency notes" means and includes cash in the form of
coins and bank notes;

"current account transaction" means a transaction other
than a capital account transaction and without prejudice to
the generality of the foregoing such transaction includes
(i) payments due in connection with foreign trade, other
current business, services, and short-term banking and credit
facilities in the ordinary course of business,
(ii) payments due as interest on loans and as net income from
investments,
(iii) remittances for living expenses of parents, spouse and
children residing abroad, and
(iv) expenses in connection with foreign travel, education and
medical care of parents, spouse and children;

"foreign exchange" means foreign currency and includes,-
(i) deposits, credits and balances payable in any foreign
currency,
(ii) drafts, travellers cheques, letters of credit or bills of exchange,
expressed or drawn in Indian currency but payable in any
foreign currency,
(iii) drafts, travellers cheques, letters of credit or bills of exchange
drawn by banks, institutions or persons outside India, but
payable in Indian currency;
"person" includes
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether
incorporated or not,
(vi) every artificial juridical person, not falling within any of the
preceding sub-clauses
"person resident in India" means- (i) a person residing in
India for more than one hundred and eighty-two days during
the course of the preceding financial year

"person resident outside India" means a person who is not
resident in India;

"repatriate to India" means bringing into India the realized
foreign exchange and

(i) the selling of such foreign exchange to an authorized person
in India in exchange for rupees, or
(ii) the holding of realized amount in an account with an
authorized person in India to the extent notified by the
Reserve Bank, and includes use of the realized amount for
discharge of a debt or liability denominated in foreign
exchange and the expression "repatriation" shall be
construed accordingly;
REGULATION AND MANAGEMENT OF
FOREIGN EXCHANGE
Dealing in foreign exchange- As per the Act no person shall-

a) deal in or transfer any foreign exchange or foreign security to
any person not being an authorized person;

b) make any payment to or for the credit of any person resident
outside India in any manner;

c) receive otherwise through an authorized person, any payment
by order or on behalf of any person resident outside India in
any manner.

d) enter into any financial transaction in India as consideration
for or in association with acquisition or creation or transfer of a
right to acquire, any asset outside India by any person.
Current account transactions

Any person may sell or draw foreign exchange to or from an
authorized person if such sale or drawl is a current account
transaction: Provided that 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 prescribed.
Capital account transactions
Subject to certain provisions, any person may sell or draw foreign
exchange to or from an authorized person for a capital account
transaction.
The Reserve Bank may, in consultation with the Central
Government, specify
(a) any class or classes of capital account transactions which are
permissible;
(b) the limit up to which foreign exchange shall be admissible for such
transactions: Provided that the Reserve Bank shall not impose any
restriction on the drawl of foreign exchange for payments due on
account of amortization of loans or for depreciation of direct
investments in the ordinary courts of business.

The Reserve Bank may, by regulations, prohibit, restrict or
regulate the following

(a) transfer or issue of any foreign security by a person resident
in India;
(b) transfer or issue of any security by a person resident outside
India;
(c) transfer or issue of any security or foreign security by any
branch, office or agency in India of a person resident outside
India;
(d) any borrowing or lending in rupees in whatever form or by
whatever name called;
(e) any borrowing or lending in rupees in whatever form or by
whatever name called between a person resident in India and
a person resident outside India;

(f) deposits between persons resident in India and persons
resident outside India;
(g) export, import or holding of currency or currency notes;
(h) transfer of immovable property outside India, other than a
lease exceeding five years, by a person resident in India;
(i) acquisition or transfer of immovable property in India, other
than a lease not exceeding five years, by a person resident
outside India;
(j) giving of a guarantee or surety in respect of any debt,
obligation or other liability incurred
(i) by a person resident in India and owed to a person resident
outside India; or
(ii) by a person resident outside India.


A person resident in India may hold, own, transfer or
invest in foreign currency, foreign security or any
immovable property situated outside India if such
currency, security or property was acquired, held or owned
by such person when he was resident outside India or
inherited from a person who was resident outside India.

A person resident outside India may hold, own, transfer or
invest in Indian currency, security or any immovable property
situated in India if such currency, security or property was
acquired, held or owned by such person when he was
resident in India or inherited from a person who was resident
in India.


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 and in such manner as may be
specified, containing true and correct material particulars,
including the amount representing the full export value or, if
the full export value of the goods is not ascertainable at the
time of export, the value which the exporter, having regard to
the prevailing market conditions, expects to receive on the
sale of the goods in a market outside India;

(b) furnish to the Reserve Bank such other information as may
be required by the Reserve Bank for the purpose of ensuring
the realization of the export proceeds by such exporter.