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MEANING OF FEMA
Foreign exchange transactions were regulated in India by the Foreign Exchange Regulation Act 1973. This also sought to regulate certain aspects of the conduct of business outside the country by Indian companies and in India by Foreign companies. There was a lot of demand for a substantial modification of FERA in the light of the on-going economic liberalization and improving foreign exchange reserve position. Accordingly a new act the FEMA 1991 replaced the FERA.
FEMA which came into effect from January 1,2000 extends to the whole of India and also applies to all branches and agencies outside India owned or controlled by a person resident in India.
OBJECTIVES OF FEMA
Various objectives of FEMA are: To facilitate external trade and payment. To promote the orderly development and maintenance of foreign exchange rate.
SCOPE OF FEMA
FEMA provides: Free transactions on current account subject to reasonable restrictions that may be imposed. RBI controls over capital account transactions. Control over realization of export proceeds. Dealing in foreign exchange through authorized persons like authorized dealer/ money changer/ off shore banking units.
of Offences. Appeal provision including Special Director (Appeals) and Appellate tribunal. Directorate of Enforcement.
Save as otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange.
FEMA permits dealing in foreign exchange through authorized person for current account transaction. However, the central government any restrict it in public interest.
Any person may exchange foreignexchange to or from an authorized person for a capital account transaction permitted by RBI. However, without prejudice, RBI may prohibit, restrict or regulate the things listed below. 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.
or issue of any security by any branch, office, or agency in India of a person resident outside India. (d)Any borrowing or lending in foreign exchange in whatever form or by whatever name called etc.
PROVISIONS OF FEMA
1.
2.
3. 4.
5.
6.
Dealing in Foreign Exchange (section 3). Holding of Foreign Exchange (section 4). Current account transactions (section 5). Capital account transaction (section 6). Export of goods and services (section 7). Realization and repatriation of Foreign Exchange (section 8).
3 of FEMA imposes restrictions on dealing in foreign exchange and foreign security and payment to and receipts from any person outside India. Accordingly, except as provided in terms of the ACT, or with the general or special permission of the Reserve Bank, no person shall:
III.
IV.
Deal in foreign exchange or foreign security with any person other than an authorized person. Make any payment to or for the credit of any person resident outside India in any manner. Receive otherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner. Enter in to any financial transaction in India as a consideration for or in association with acquisition or transfer of a right to acquire, any asset outside India by any person.
person may sell or draw foreign exchange to or from an authorized person for a capital account transaction. The RESERVE BANK may, in constitution with the Central Government, specify any class or classes of capital account transactions which are permissible and limit upon which foreign exchange shall be admissible for such transactions.
exporter of goods or services shall furnish to the reserve bank details regarding the export value of such goods or services.
any amount of foreign exchange is due or accrued to any person resident in India, such a person shall take steps to realize and repatriate to India, such foreign exchange within a specified period of time.
Penalty for any kind of contravention under this Act is liable to a penalty up to thrice the amount involved where it is quantifiable or up to Rs 2alkhs where it is not quantifiable and where such contravention is continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues. This provision is in total contrast to the respective provision in the erstwhile FERA which provided for imprisonment and no limit on fine.
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