foreign exchnge management

Foreign Exchange Management Act(FEMA)

Presented By,SARIKA IS2 MBAUIM PUNALUR

Statutory Basis for Exchange Control

The Foreign Exchange Regulation Act, 1973 (FERA 1973), as amended by the Foreign Exchange Management (Amendment) Act, 1999, forms the statutory basis for Exchange Control in India.

FOREIGN EXCHANGE MECHANISM

FEMA is applicable to the all parts of India. The act is also applicable to all branches, offices and agencies outside India owned or controlled by a person who is resident of India.

The Foreign Exchange Management Act (1999) or in short FEMA has been introduced as a replacement for earlier Foreign Exchange Regulation Act (FERA). FEMA came into force on the 1st day of June, 2000.

FEMA - OBJECTIVES consolidate and amend the law relating to foreign

exchange facilitating external trade and payments promoting the orderly development and

maintenance of foreign exchange market in India 49 sections in the Act

FEMA (1999)

Dealing in foreign exchange- As per the Act no person shall

deal in or transfer any foreign exchange or foreign security to any person not being 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.

a) .

REGULATION AND MANAGEMENT OF FOREIGN EXCHANGE

enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person.

CURRENT ACCOUNT TRANSACTIONS

Any person may sell or draw foreign exchange to or from an authorized person if such sale or drawl is a current account transaction: Provided that the Central Government may, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions for current account transactions as may be prescribed.

Subject to certain provisions, any person may sell or draw foreign exchange to or from an authorized person for a capital account transaction.

The Reserve Bank may, in consultation with the Central Government, specify –

(a) any class or classes of capital account transactions which are permissible;

CAPITAL ACCOUNT TRANSACTIONS

(a) the limit up to which foreign exchange shall be admissible for such transactions: Provided that the Reserve Bank shall not impose any restriction on the drawl of foreign exchange for payments due on account of amortization of loans or for depreciation of direct investments in the ordinary courts of business.

The Reserve Bank may, by regulations, prohibit, restrict or regulate the following –

(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;

(c) transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India;

(d) any borrowing or lending in rupees in whatever form or by whatever name called;

(e) any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident out side india.

(f) deposits between persons resident in India and persons resident outside India;

(g) export, import or holding of currency or currency notes;

(h) transfer of immovable property outside India, other than a lease exceeding five years, by a person resident in India;

(i) acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India;

(j) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred –

(i) by a person resident in India and owed to a person resident outside India; or

(ii) by a person resident outside India.

A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.

A person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.

Every exporter of goods shall –

(a) furnish to the Reserve Bank or to such other authority a declaration in such form and in such manner as may be specified, containing true and correct material particulars, including the amount representing the full export value or, if the full export value of the goods is not ascertainable at the time of export, the value which the exporter, having regard to the prevailing market conditions, expects to receive on the sale of the goods in a market outside India;

EXPORT OF GOODS AND SERVICES

b) furnish to the Reserve Bank such other information as may be required by the Reserve Bank for the purpose of ensuring the realization of the export proceeds by such exporter.

Authorized Person: Authorized under the Act to deal in foreign exchange

Capital account transaction: Alters the assets or liability

Currency: Currency notes, Money order, cheque, drafts etc…

Currency Notes: Coin and bank notes

Currency Account Transaction: Transactions other than capital account transactions

Indian Currency: Indian rupees

Important Terms (Sec-2)

Export: Goods and services from India to outside

Foreign Currency: Other than Indian currency

Foreign Exchange: Means foreign currency

Foreign Security: Security expressed in foreign currency

Import: Goods and services from outside to India

Security: Shares, Stock etc as defined in the Public Debt Act of 1994

Prohibits dealings in foreign exchange except through 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 into any financial transaction in India for acquisition or creation or transfer of a right to acquire, any asset outside India by any person

Provisions in Section 3

SECTION 4 – deals with current account transaction Any person may sell or draw foreign exchange to or from

an authorized person if such sale or drawl is a current account transaction

SECTION 6 - deals with capital account transactions. This section allows a person to draw or sell foreign

exchange from or to an authorized person for a capital account transaction. Restrains any person resident in India from acquiring, holding, owning, possessing or transferring any foreign exchange, foreign security or any immovable property situated outside India except as specifically provided in the Act.

SECTION 5 –

Provisions in Sections ……

SECTION 7 - deals with export of goods and services.Every exporter is required to furnish to the RBI or

any other authority, a declaration etc. etc. regarding full export value.

SECTION 8 and 9- casts the responsibility on the persons resident in

India who have any amount of foreign exchange due or accrued in their favor to get same realized and repatriated to India within the specific period and the manner specified by RBI.

SECTIONS 10 and 12 - deals with duties and liabilities of the Authorized

persons authorized dealer, money changer, off shore banking unit or any other person for the time being authorized to deal in foreign exchange or foreign securities.


SECTION 13 – Any contravention, under FEMA, may invite following kinds

of penalties: If, the amount against which offence is quantities, then

penalty will be "THRICE" the sum involved in contravention.

Where the amount cannot be quantified the penalty may be imposed up to two lakh rupees.

If, the contravention is continuing everyday, then Rs. Five Thousand for every day after the first day during which the contravention continues.

Further in addition to the penalty, any currency, security or other money or property involved in the contravention may also be confiscated.


SECTION 14 –If a person fails to make full payment of the

penalty imposed with in a period of 90 days, he shall be liable to civil imprisonment.

SECTION 15 – Empowers the Directorate of Enforcement and

Officers of the Reserve Bank of India as may be authorized by the central Govt. in this behalf to compound the offences.

SECTION 16 –Empowers the central Govt. to appoint the as many

adjudicating authorities as it may think fit for holding enquiries.


SECTION 17 – Empowers the central Govt. to appoint one or more

special Directors to hear the appeals against the orders of the Adjudicating Authorities.

SECTION 18 – Empowers the central Govt. to establish Appellate

Tribunal to hear appeals against the orders of Adjudicating Authorities and special Director.

SECTION 19 – It makes provisions as regards appeals to Appellate

Tribunal.


SECTION 20 – Composition of Appellate Tribunal.

SECTION 21 – Qualifications for appointment of Chairperson

member and Special Director. SECTION 22 –

Term of Office. SECTION 23 –

Terms and Conditions of service. SECTION 24 –

Vacancies.


SECTION 25 – Resignation and Removal.

SECTION 26 – Member to act as Chairperson in certain circumstances.

SECTION 27 – Staff of Appellate Tribunal and Special Directorate.

SECTION 28 – Power of Appellate Tribunal and Special Director.

SECTION 29 – Distribution of business among benches.

SECTION 30 – Power of Chairperson to Transfer cases.


SECTION 31 – Decision to be by majority.

SECTION 32 – Right of Appellant to take assistance of legal practitioner or

CA and of Govt. to appoint presenting officer. SECTION 33 –

Members, etc to public servants. SECTION 34 –

Civil court not to have jurisdiction. SECTION 35 –

Appeal to High Court.


SECTION 36 to 38 – Directorate of Enforcement enforcement of the provisions of the Foreign Exchange

Management Act prevent leakage of foreign exchange

Remittances of Indians abroad otherwise than through normal banking channels, i.e. through compensatory payments.

Acquisition of foreign currency illegally by person in India. Non-repatriation of the proceeds of the exported goods. Unauthorized maintenance of accounts in foreign countries. Siphoning off of foreign exchange against fictitious and

bogus imports land by. Illegal acquisition of foreign exchange through Hawala


MAIN FEATURES

FEMA gives the central government the power to impose the restrictions.

The transactions should be made only through an authorized person.

Deals in foreign exchange under the current account by an authorized person can be restricted by the central government.

Deals in foreign exchange under the current account by an authorised person can be restricted by the central Government, based on public interest.

The RBI is empowered by this Act to subject

the capital account transactions to a number of restrictions.

It is more transparent in its applications as it lays down the areas requiring specific permission of the Reserve Bank/ Government of India on acquisition/ holding of Foreign Exchange.

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FERA V/s FEMA:-FERA V/s FEMA:-

1.In FEMA only the specified acts related to foreign exchange are regulated while in FERA anything and everything that has to do with foreign exchange was controlled

2.The objective of FEMA is to facilitate trade while that of FERA is to prevent misuse

3.FEMA is a much smaller enactment only 49 sections against 81 sections of FERA.

4.Violation of FERA was considered a criminal offence. Whereas violation of FEMA was considered a civil offence. 5. Under FERA citizenship was a criteria while

determining a person as resident of India whereas under FEMA stay of more than 182 days is a criteria to determine residential status of a person.

6.The objective of FERA was to conserve forex and prevent its misuse. The objective of FEMA is to facilitate external trade and payments and maintenance of foreign exchange in India.

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