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Home / Articles / All about Foreign Exchange Management (FEMA) Act, 1999 By Khushika Setia

All about Foreign Exchange Management (FEMA) Act, 1999 By Khushika Setia

July 29, 2018:

The Author, Khushika Setia is a student of LLB at Punjabi University, Patiala. She is currently interning with LatestLaws.com.

Q1. How FEMA,1999 came into existence?

Answer :-  Due to the shortage of the foreign currency in the country , the Foreign Exchange Regulation Act , 1973 (FERA) was enacted. The legislation by Indian Parliament and it came into force w.e.f. January 1,1974.

But the act was unable to meet the post liberalization policies. So , the Foreign Exchange Regulation Act 1973 was replaced by Foreign Exchange Management Act , 1999. FEMA came into force with effect from June1, 2000.


Q2. What are the objectives of the Act ?

Answer :- The objectives of the act are as follows

  • To facilitate and promote

-External Trade and Payments.

-Development of foreign Exchange market in India.

Note :- The controlling authority – RBI

The implementing authority – Directorate of Enforcement .

Q3. Discuss the basic structure of the act ?

Answer:- FEMA contains 7 Chapters divided into 49 sections of which 12 sections covers operational part and rest deals with contravention,  penalties, adjudication, appeals, enforcement etc.

FEMA provide the basic legal framework. Under section 46 , it empowers the Central Government to make the rules. Under section 47, it empowers RBI to make the regulations. Its main powers are with the Central Government and the RBI.

Q4. State the difference between FERA and FEMA.

Answer :-  The difference between FEMA and FERA are as follows:-

FERA,1973 FEMA,1999
–         It’s the part of criminal law. –         It’s the part of civil law.
–         Presumption of mens rea. –         Malafide has to be proved
–         Penalty is charged in fine and imprisonment of max 5 years –         Penalty is charged only in form of fine.
–         No one can arrest a person without a warrant. –         Arrest can be made if fine is not paid.
–         Enforcement Directorate is most powerful. –         Enforcement directorate jurisdictional scope has been curtailed.
–         Written complaint is not mandatory. –         A complaint must be in written form and can be filed only by CG.

Q5. List the Current account transactions specified under FEMA,1999.

Answer :- The list of the transaction specified under FEMA,1999 are as follows:-

  1. Transfer or issue of any foreign security by PRI.
  2. Transfer or issue of any security by PROI.
  3. Transfer or issue of any security or foreign security by any branch in India of PROI.
  4. Deposited between PRI-PROI.
  5. Export, Import or holding of currency.
  6. Transfer of Immovable property in outside India by a PRI. ( except when lease term is equal to or more than 5 years)
  7. Acquisition / Transfer of immovable property in outside India by a PROI. . ( except when lease term is equal to or more than 5 years)
  8. Giving of guarantee (or) surety in respect of any debt, obligation etc.
  • By PRI for( PROI) person resident outside India
  • By PROI for PRI person resident in India

Q6. List the prohibition of Current account transactions(CAT)  specified under FEMA,1999.

Answer :-  Prohibited CuAT (Current Account Transaction)

  • Travel to Nepal / Bhutan
  • Any transaction in case of export from Nepal / Bhutan.{can be received in forex if the importing country has taken permission from its Central Bank (Regulatory body ) over there}
  • Remittance out of lottery winning
  • Remittance of income from racing / riding etc.
  • Remittance for purchase of lottery ticket, banned magazines etc.
  • Payment of commission on export made towards equity investment in JV/WOS aboard of Indian Companies.
  • Payment of commission on export under “Rupee state credit Route”.(except commission upto 10% of invoice value of exports of tea and tobacco.)
  • Payment related to “call back services” of telephones.
  • Remittance of interest income on funds held in Non-resident Special Rupee Scheme Account.

Q7. List the CAT which requires the approval of Central Government

Answer :- The CAT which requires the approval of the Central Government are as follows :-

  • Forex outward remittance for cultural tours O/s India.
  • Forex outward remittance for advertisement in foreign print > 10,000$ media
  • Exceptions
  • promotion of tourism by SG/CG
  • foreign investment by SG/CG
  • international biding by SG/CG
  • Outward remittance of freight by vessel charted by a PSU.
  • Payment in forex for import by Govt. Department / PSU on CIF basis.
  • Multi model transport operators making remittance to their agent abroad.
  • Forex outward remittance of container detention charge > rate prescribed by DG of shipping
  • Forex outward remittance of prize money / sponsorship of sports > 1,00,000 $
  • Exception
  • International sports bodies
  • National level sports bodies
  • State level sports bodies
  • Forex outward remittance for membership of club.

Q8. List the CAT which requires the approval of RBI

Answer :- The CAT which requires the approval of the RBI are as follows :-

For Individuals

Any additional remittance in excess of USD 2,50,000 in a year for the following purposes shall require prior approval of the Reserve Bank of India:-

  • Private visits to any country (except Nepal and Bhutan)
  • Gift or donation.
  • Going abroad for employment
  • Emigration
  • Maintenance of close relatives abroad
  • Travel for business, or attending a conference or specialised training
  • For meeting expenses for meeting medical expenses, check-up abroad, for accompanying as attendant to a patient going abroad for medical treatment/ checkup.
  • Expenses in connection with medical treatment abroad
  • Studies abroad
  • Any other current account transaction.

For persons other than individual

  • Donations exceeding 1% of their foreign exchange earnings during the previous 3 financial years or USD 5,000,000, whichever is less, for
  • Creation of Chairs in reputed educational institutes,
  • contribution to funds (not being an investment fund) promoted by educational institutes; and
  • contribution to a technical institution or body or association in the field of activity of the donor Company.
  • Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India exceeding USD 25,000 or 5% of the inward remittance whichever is more.
  • Remittances exceeding USD 10,000,000 per project for any consultancy services in respect of infrastructure projects and USD 1,000,000 per project, for other consultancy services procured from outside India.
  • Remittances exceeding 5% of investment brought into India or USD 100,000 whichever is higher, by an entity in India by way of reimbursement of pre-incorporation expenses.”

Q9. Explain Liberalised Remittance Scheme. (LRS)

Answer :- –  Under Liberalised Remittance Scheme allow remittances by a resident individual up to USD 250,000 per financial year for any permitted current or capital account transaction or a combination of both.

  • If an individual has already remitted any amount under the LRS, then the applicable limit for such an individual would be reduced from the present limit of USD 250,000 for the financial year by the amount already remitted.
  • the permissible capital account transactions by an individual under LRS are:
  • opening of foreign currency account abroad with a bank;
  • purchase of property abroad;
  • making investments abroad;
  • setting up Wholly owned subsidiaries and Joint Ventures abroad;
  • extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in Companies Act, 2013.

Q10. Name the activities that a Liaison Officer can undertake in India

Answer :-   A Liaison Office can undertake the following activities in India:

  • Representing in India the parent company / group companies.
  • Promoting export / import from / to India.
  • Promoting technical/financial collaborations between parent/group companies and companies in India.
  • Acting as a communication channel between the parent company and Indian companies.
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