Basics notion of Foreign Exchange Management Act, 1999

The Foreign Exchange Management Act, 1999 was enacted by the Indian Central Government to facilitate external payments and cross-border trade in India. FEMA (Foreign Exchange Management Act) was enacted in 1999 to replace FERA (Foreign Exchange Regulation Act) (Foreign Exchange Regulation Act). FEMA was created to address all of the flaws and shortcomings of FERA (Foreign Exchange Regulation Act), and as a result, it enacted a number of economic reforms (major reforms). FEMA was created primarily to de-regulate and liberalize India’s economy.

FEMA’s Objectives

FEMA was established in India with the primary goal of facilitating international trade and payments. FEMA was also created to aid the development and maintenance of the Indian currency market in an orderly manner. The Foreign Exchange Management Act (FEMA) establishes the rules and processes for all foreign exchange transactions in India. Capital Account Transactions and Current Account Transactions are the two types of foreign exchange transactions that have been categorized.

The balance of payment, as defined by the FEMA Act, is a record of transactions in commodities, services, and assets between citizens of different countries. Capital Account and Current Account are the two primary types of accounts.

The Capital Account includes all capital transactions, whereas the Current Account includes merchandise trade. Current Account transactions are those that include the inflow and outflow of money to and from a country or countries over the course of a year as a result of commodity, service, and income trading/rendering.

The current account is a measure of a country’s economic health. As previously stated, the balance of payment is made up of current and capital accounts, with the capital account accounting for the flow of capital in the economy as a result of capital receipts and expenditures. Domestic investment in foreign assets and foreign investment in domestic assets are both recognized in the capital account.

FEMA Act’s Applicability

FEMA (Foreign Exchange Management Act) applies to the entire country of India as well as agencies and offices operating outside of India (which are owned or managed by an Indian Citizen). The Enforcement Directorate, FEMA’s headquarters, is located in New Delhi. The Foreign Exchange Management Act (FEMA) is responsible for:

• Foreign currency exchange.
• Foreign security.
• Any commodity and/or service exported from India to a country outside of India.
• Importation of any product or service from a country other than India.
• Securities in the sense of the Public Debt Act, 1994.
• Any form of purchase, sale, or exchange (i.e. Transfer).
• Banking, financial, and insurance services are all available.
• Any NRI (Non-Resident Indian) who owns 60% or more of a company in another country.
• Any Indian citizen, whether residing inside or outside the nation (NRI).

The FEMA Act categorizes current account transactions into three components, which are as follows:

• Transactions forbidden by FEMA; 
• Transactions requiring authorization from the Central Government; 
• Transactions requiring clearance from the RBI.

Withdrawal of Foreign Exchange Is Prohibited

• Any remittance received as a result of winning the lottery.
• Any form of remittance from racing/riding income, etc.
• Any payment made for the purchase of a lottery ticket, football pools, sweepstakes, or banned/prescribed magazines, for example.
• Payment of export commissions to Indian companies for equity participation in joint ventures/wholly owned subsidiaries abroad.
• Any company’s dividend remittance. This section, however, is only applicable if the dividend balance condition is met.
• Payment of a commission on exports under the Rupees State
• Except for commissions up to 10% of the invoice value of tea and tobacco exports, credit routes are available.
• Payment is made for telephone “Call Back Services.”
• A trip to Bhutan and/or Nepal is planned.
• Interest income on monies maintained in an NRSR account (Non-resident Special Rupees Scheme account) is remitted.
• A transaction with a Bhutanese or Nepalese resident.

Foreign Exchange Withdrawal Route

Foreign Exchange can be obtained through the Prior Approval Route or the General Permission Route, according to the Reserve Bank of India.

Drawl of foreign exchange transactions that require prior clearance from the Central Government

Transactions requiring prior approval from the Central Government for foreign exchange drawl are as follows-

• Cultural journeys.
• Advertisement in a foreign country’s print media for any purpose other than promoting tourism, international bidding, and foreign investments (in excess of $10,000 USD) by a state government and its public sector units.
• Payment of importation on a c.i.f. basis by a Public Sector Unit or a Department of Government only for importation via ocean transport.
• Freight remittance from chartered vessels
• Remission of container detention fees that exceed the DGS’s (Director General of Shipping) prescribed rate.
• Remittance of prize money/sponsorship of any sport activity outside India by a person other than national/international/street level sports bodies, if the prize money/sponsorship exceeds $1,000,000 USD.
• Remission of transponder rental fees.
• Internet Service Providers (ISPs).
• Channels on television
• Reimbursement for P&I Club ministry membership.
• Multi-model transport operators remit funds to their overseas agents.

Penalties Pursuant to FEMA

If anyone violates the provisions of FEMA or any rule, direction, regulation, order, or notification issued under FEMA, he will be fined up to three times the amount involved in the violation, or Rs.2 lakh. If the contravention continues, he will be subject to a further penalty of Rs.5, 000 for each day the contravention continues.

Endnote

FEMA empowers the central government to impose restrictions on activities such as making payments to people who live outside the country or receiving money through them. FEMA also has restrictions on foreign exchange and foreign security transactions. The primary goal of FEMA was to aid in the facilitation of external trade and payments in India. It was also intended to aid in the orderly development and maintenance of India’s foreign exchange market. It establishes the procedures, formalities, and transactions for all foreign exchange transactions in India.

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