What is Foreign Exchange Management Act (FEMA)?

Last Updated at: Oct 23, 2019
Foreign Exchange management Act

The Foreign Exchange Management Act (FEMA) is an act which is passed in the winter session of the Parliament in the year of 1999, replacing the Foreign Exchange Regulation Act (FERA). This act seeks to take care of the offences related to the foreign exchange of civil offences. It is applicable to the whole of India. Hindi.

FEMA (Foreign Exchange Management Act) was passed in 1999 and replaces FERA (Foreign Exchange Regulation Act). It handles the offenses pertaining to foreign exchange. It has become very important as it supports the Indian government’s pro-liberalization policies. You can get more details regarding FEMA in India from here.

The Foreign Exchange Regulation Act (FERA), 1973 was replaced in June 2000 in India by the Foreign Exchange Management Act (FEMA), which was passed in 1999. The FERA was passed in 1973 during the time period when there was an acute shortage of foreign exchange in India.

It had a contentious 27 years stint during which many chiefs of the Indian corporate world found themselves at the pity of the Enforcement Directorate. Furthermore, any offence under the FERA was a criminal offence accountable to imprisonment. But under FEMA the offences are related to foreign civil offences.

FEMA had become very important to support the pro-liberalization policies of the Indian government. The main objective of the Act is to combine and amend the laws related to foreign exchange with the objective of enabling external payments and trade for promoting the orderly maintenance and development of foreign exchange market in India.

FEMA is extended to the whole of India. It is applied to all the branches, offices and the agencies outside India owned by or controlled by an individual, who is an Indian resident and also to any infringement thereunder committed outside India by two individuals whom this Act applies.

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Significant Features of the FEMA-

The following are some of the significant features of the Foreign Exchange Management Act-

1)  It is constant with full current account convertibility and contains provisions for the progressive liberalization of the capital account transactions.

2)  It is extra transparent in its application as it lays down the areas necessitating specific permissions of the Reserve Bank and Government of India on acquisition or holding of foreign exchange.

3)  Under FEMA, foreign exchange transactions are divided into two categories, they are capital account and current account transactions.

4)  It gives power to the Reserve Bank of India for specializing in consultation with the Central Government, the classes of the capital account limits and transactions to which the exchange is acceptable for such kind of transactions.

5)  It gives full freedom to an individual who is resident in India, who was previously resident outside India, to hold or own or transfer any foreign security or immovable property situated outside India and attained when she was resident.

6)  This FEMA Act is a civil law and any kind of contraventions of the Act provide for arrest only in the exceptional cases.

So, this is about the importance of FEMA act in India and its main features.

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