GURMEET SINGH(5833) & LALIT KUMAR(5820) MBA 2ND

History of foreign exchange

Back to Indian economy y 1950-1960 Limited resource for export y 1970-1980 more emphasis on promotion of export y INDIA s share in world trade 2.4% in 1951 0.4% in1980 0.5% in 1990

Foreign Exchange Market in India

Tier-I Regulator: Reserve Bank of India Regulation: Foreign Exchange Management Act, 1999 Tier - II Authorized Dealers, Money changers Tier-III Buyers and sellers: exporters, importers, individuals, Corporates, FIIs, Non-Residents, NRIs etc.

Forex Activities in India Facilitators

y y y y y y y y y

Ministry of Finance Ministry of Commerce Directorate of Enforcement Customs Export Promotion Councils Export Inspection Units Authorized Persons EXIM Bank RBI

Foreign exchange system

1991- New foreign investment policy announced in 1991July. 1992- LERMS (Liberalized Exchange Rate Management 1992System) 1993- Modified LERMS 1993 1994 Current Account Convertibility - declared 1997 Capital Account Convertibility debate started 2000 FEMA 1999 replaced FERA 1973 w.e.f.1.6.2000
Until1991all foreign investments under FERA

FERA
y FERA was legislation passed by the Indian Parliament in 1973 by the government of Indra Gandhi y 81 section y Regulate foreign company y Regulate employ of foreign national y Export and import y Regulate acquistion,holding of immoveable property outside India and in India y Conserve the foreign exchange resource of country y Dealing in foreign exchange and securities y Transactions indirectly affect foreign exchange

Why there is need to change the FERA

Fortunately, with the winds of liberalization blowing in the early 1990's, the Government relaxed many of the rigors of FERA by issuing notifications. Forex reserves swelled, the rupee was made convertible on current account. In this liberal atmosphere, the government realized that possession of Forex could no longer be regarded as a crime, but was an economic offence, for which the more appropriate punishment was a penalty. Thus, the need of FEMA was felt. The primary difference between FERA and FEMA therefore lies in the fact that offences under FEMA are not regarded as criminal offences and only invite penalties, not prosecution and imprisonment

FEMA
y FERA was repealed in 2000 by the government of

Atal Bihari Vajpayee and replaced by the Foreign Exchange Management Act, which liberalized foreign exchange controls and restrictions on foreign investment y 49 section y To facilitate external trade and payments y To promote the orderly development and maintains of foreign exchange market

WHAT IS NEW IN FEMA REGIME ?

Preamble itself is changed All current account transactions are free Capital account transactions are deregulated Definition of NRI changed from purpose to residence From Criminal law to Civil Law Less punishment No Imprisonment Compounding powers to RBI Less stringent & more business friendly

FEMA Overview (ACT) STRUCTURE OF THE FEMA

y FEMA has in all 49 sections of which 9 (section 1 to 9)

are substantive and procedural/administrative.

the

rest

are

y Section 46 of the Act grants power to Central Government to makes rules and section 47 of the Act grants power to RBI to make regulations to implements its provisions and the rules made there under. y Thus RBI is entrusted with the administration and implementation of FEMA

CHAPTERCHAPTER-I
y PRELIMINARY Short title, extent, application and commencement y Definition y Person (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 the clause mentioned above. (vii) any agency, office or branch owned or controlled by such person;

Cont.
y Person resident in India" means-

(i) A person residing in India for more than 184 days during the course of the preceding financial year y Authorized person y Export import currency y RBI y Security

CHAPTER-II
Regulation and Management of Foreign Exchange
y Dealing in foreign exchange

Except with a general or special permission of the Reserve Bank, a person shall not do the following transaction(1) Deal in or transfer any foreign exchange or foreign security to any person not being an authorized person; (2) (a) Make any payment to any person resident outside India in any manner; (b) Make any payment for the credit of any person resident outside India in any manner; (3)Receive otherwise through an authorized person any payment By order any person resident outside India in any manner;

HOLDING OF FOREIGN EXCHANGE

y Except as specifically provided in this Act y (1)A person resident in India shall Not acquire, hold,

own, possess or transfer any foreign exchange, foreign security y (2) A person resident in India shall Not acquire, hold, own, possess or transfer any immovable property situated outside India.

CURRENT ACCOUNT TRANSACTIONS

Current account transaction" means a transaction other than a capital account transaction . 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.

Export of goods and services

Repatriation of foreign exchange

CAPITAL ACCOUNT TRANSACTIONS

Capital account transaction means a transaction,

which alters the assets or liabilities, including contingent liability:

Outside India of person resident in India

In India of person resident outside It includes transaction referred to sub section 3 1. 2.

of section 6. That is :Transfer or issue of any foreign security by a person resident in India; Transfer or issue of any security by a person resident outside India;

3. Transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India 4. Any borrowing or lending in foreign exchange in whatever form or by whatever name called. 5. 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. 6. Deposits between persons resident in India and persons resident outside India. 7. Export, import or holding of currency or currency notes.

8. Transfer of immovable property outside India, by a person resident in India. This does not apply to a lease not exceeding five years. 9. Acquisition or transfer of immovable property in India, by a person resident outside India; 10. Give guarantee or surety in respect of any debt, obligation or other liability incurred11. (i) By a person resident in India and owed to a person resident outside India; or (ii) by a person resident outside India.

CHAPTER-III
Authorized person

(a) Authorized dealer

(b) money changer (c) off-shore banking unit Reserve Bank s powers to issue directions to authorized person Power of Reserve Bank to inspect authorized person

CHAPTER-IV
Contravention and Penalties y Penalties y Enforcement of the orders of Adjudicating Authority

CHAPTER-V
Adjudication and Appeal y Appointment of Adjudicating Authority y Appeal to Special Director (Appeals). y Establishment of Appellate Tribunal. y Appeal to Appellate Tribunal y Composition,Qualification,Term, y Appeal to High Court

CHAPTER-VI
y Directorate of Enforcement y Power of search, seizure, etc. y Empowering other officers

CHAPTER-VII
Miscellaneous y Power of Central Government to give directions y Removal of difficulties y Power to make rules y Power to make regulations y Rules and regulations to be laid before Parliament

SIMILARITIES
y The Reserve Bank of India and central government

would continue to be the regulatory bodies. y Presumption of extra territorial jurisdiction as envisaged in section (1) of FERA has been retained. y The Directorate of Enforcement continues to be the agency for enforcement of the provisions of the law such as conducting search and seizure

Difference Between FERA and FEMA

1.

PROVISIONS
FERA consisted of 81sections, and was more complex FEMA is much simple, and consist of only 49 sections.

2. FEATURES
Presumption of negative intention and joining hands in offence (abatement) existed in FEMA These presumptions of Mens Rea and abatement have been excluded in FEMA

3.

NEW TERMS
IN FEMA Terms like Capital Account Transaction, current Account Transaction, person, service etc. were not defined in FERA.

4.

DEFINITION OF AUTHORISED PERSON

Definition of "Authorized Person" in FERA was a narrow one, The definition of Authorized person in FEMA has been widened to include banks, money changes, off shore banking Units etc.

5. MEANING OF "RESIDENT" AS COMPARED WITH INCOME TAX ACT.

There was a big difference in the definition of Resident", under FERA, and Income Tax Act The provision of FEMA, are in consistent with income Tax Act, in respect to the definition of term " Resident". Now the criteria of "In India for 182 days" to make a person resident has been brought under FEMA

6. PUNISHMENT
Any offence under FERA, was a criminal offence , punishable with imprisonment as per code of criminal procedure, 1973 Here, the offence is considered to be a civil offence only punishable with some amount of money as a penalty. Imprisonment is prescribed only when one fails to pay the penalty.

7. QUANTUMOF PENALTY.
The monetary penalty payable under FERA, was nearly the five times the amount involved. Under FEMA the quantum of penalty has been considerably decreased to three times the amount involved.

8. APPEAL
An appeal against the order of "Adjudicating office", before " Foreign Exchange Regulation Appellate Board went before High Court. The appellate authority under FEMA is the special Director Appeal against the order of Adjudicating Authorities and special Director lies before "Appellate Tribunal for Foreign Exchange." An appeal from an order of Appellate Tribunal would lie to the High Court.

9. RIGHT OF ASSISTANCE DURING LEGAL PROCEEDINGS.

FERA did not contain any express provision on the right of on impleaded person to take legal assistance FEMA expressly recognizes the right of appellant to take assistance of legal practitioner or chartered accountant

FEMA Answer these questions

y Who are authorized dealers? y How much currency is allowed for a business

tour? y How much forex is permitted for studies abroad? y How much foreign currency can an emigrant take? y How much foreign exchange can be carried by a person visiting India?

Limits upto which ADs can release foreign Exchange

Sl no

Transaction

Limit in US $

1 2

Private visit Business travel, Conference, Training

USD 10,000 per financial year 10, USD 25,000 per trip 25,

3 4

Medical treatment USD 100,000 or its equivalent 100,

on self declaration basis

Higher studies

USD1,00,000 per academic year USD1 00,

30

Limits upto which ADs can release foreign Exchange

Sl. no. no.
5

Transaction

Limit

Employment Emigration

Upto USD 1,00,000 00, Upto USD 1,00,000 00, USD 5,000 per remitter/donor per annum. annum.

Gift/donation

Maintenance of close USD 1,00,000 per recipient 00, relatives abroad Cultural LRS as sanctioned by GoI USD 2,00,000 per financial year 00,
31

9 10