The Foreign Exchange Management Act (FEMA), introduced in 1999, is all about modernizing and consolidating India’s foreign exchange regulations. Its purpose is to facilitate external trade and payments, while also supporting the structured development of the foreign exchange market.
Key Objectives and Features of FEMA:
• Objective: The main goal is to make external trade and payments easier while also fostering a well-organized foreign exchange market in India.
• Replaced FERA: FEMA took the place of the Foreign Exchange Regulation Act (FERA) from 1973. • Liberalization: The aim of FEMA was to liberalize and de-regulate the Indian economy, shifting from a tightly controlled system to one that’s more market-driven.
Key Provisions:
FEMA has some specific rules when it comes to who can handle foreign exchange or foreign securities. Only authorized individuals are allowed to engage in these transactions. It also outlines how foreign exchange transactions in India are categorized into two types: current account transactions and capital account transactions, along with the necessary procedures and formalities. Additionally, FEMA requires that any foreign exchange owed to someone living in India must be realized and brought back within a certain timeframe and in a specific way. It’s worth noting that the Reserve Bank of India (RBI) has the authority to impose restrictions on capital account transactions, even if they are conducted by an authorized person.
Penalties: The Reserve Bank can impose penalties on authorized persons who contravene directions or fail to file returns.
Scope: FEMA applies to all branches, offices, and agencies outside India owned or controlled by a person resident in India, and to any contravention committed outside India by any person to whom the Act applies.
Commencement: The Act came into force on 1st June 2000.