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INTRODUCTION TO FEMA The Foreign Exchange Regulation Act, 1973 was reviewed in 1993 and several amendments were enacted as part of the ongoing process of economic li eralisation relating to foreign investment and foreign trade for closes interaction with the world econom!" #ignificant development have ta$en place since 1993 such as su stantial increase lours foreign exchange reserves , growth in foreign trade, nationali%ation of tariffs ,current account converti ilit!, li erali%ation of &ndian investments a road increase access to external commercial orrowings ! &ndian corporate and participation of foreign institutional investing in our stoc$ mar$ets" At that stage the central government decided that a further review of the Foreign Exchange Regulation Act would e underta$en in the light of su se'uent developments and experiences in relation to foreign trade and investment" (eeping in view the changed environment, the central )overnment decided to introduce" The Foreign Exchange *anagement +ill and repeat the Foreign Exchange Regulation Act, 1973" The Foreign Exchange*anagement +ill was passed ! oth the ,ouse of parliament and received the assent of the parliament on -9 .ecem er 1999" Through this seminars & am going to introduce a detail report a out the Foreign Exchange *anagement Act of 1999"This includes the operations, its o /ectives, scope, characteristics and various provisions in the Foreign Exchange *anagement Act" This Foreign Exchange *anagement Act 1999 was the conservation of Foreign Exchange resources of the countr!" What is Foreign Exchange Management Act [FEMA] The Foreign Exchange Regulation Act is an act to consolidate and amend the law relating to foreign exchange with the o /ective of facilitating external trade and pa!ments and for promoting the orderl! development and maintenance of foreign exchange mar$et in &ndia" The act extends to the whole of &ndia" &t shall also appl! to all ranches, offices and agencies outside &ndia owned or controlled ! a person resident in &ndia and also to an! contravention there under committed outside &ndia ! an! person to whom this act applies" The main objects of the foreign exchange management act are as follows: To regulate import and export of currenc! To Regulate ac'uisition, holding etc", of immova le propert! in &ndia ! non0residents To regulate holding o immova le propert! outside &ndia To regulate dealings in foreign exchange and securities" To regulate certain pa!ments To regulate foreign companies" To regulate the transactions indirectl! officiating foreign exchange" To regulate emplo!ment of foreign nationals To conserve the foreign exchange resources of the countr! and to utilise the same in the interest of the economic development of the countr!1 Salient features of FEMA: An! person ma! sell or draw foreign exchange, without prior permission and can later on inform R+&" This ma$es it a more positive feature" &t will facilitate trade rather than prevent misuse of foreign exchange" 1 Kumar Nirmal Prasad, Dr. N.B. Road, Nepali Shiv Mandir, Tinsukia (Assam 7 !"#$% &on'a(' No.) *$77+*7*!7, ,mail) Kumarnirmalprasad-.mail.(om Blo.s) ///.d0nami('u'orial.1lo.spo'.in2 ///.(p'(/a.1lo.spo'.(om
CAPITAL ACCOUNT AND CURRENT ACCOUNT TRANSACTIONS 7apital account transaction is defined as a transaction which80 a" Alters the assets or lia ilities, including contingent lia ilities, outside &ndia of persons resident in &ndia" &n other words, it includes those transactions which are underta$en ! a resident of &ndia such that his4her assets or lia ilities outside &ndia are altered 2 either increased or decreased3" For example80 2i3 a resident of &ndia ac'uires an immova le propert! outside &ndia or ac'uires shares of a foreign compan!" This wa! his4her overseas assets are increased9 or 2ii3 a resident of &ndia orrows from a non0resident through External commercial +orrowings 2E7+s3" This wa! he4she has created a lia ilit! outside &ndia" " Alters the assets or lia ilities in &ndia of persons resident outside the &ndia" &n other words, it includes those transactions which are underta$en ! a non0resident such that his4her assets or lia ilities in &ndia are altered 2either increased or decreased3" For example, 2i3 a non0resident ac'uires immova le propert! in &ndia or ac'uires shares of an &ndian compan! or invest in a :holl! ;wned #u sidiar! or a <oint =enture with a resident of &ndia" This wa! his4her assets in &ndia are increased9 or 2ii3 a non0resident orrows from &ndian housing finance institute for ac'uiring a house in &ndia" This wa! he4she has created a lia ilit! in &ndia" Powers of !" With res#ect to $a#ital Account Transactions
The Act has empowered the Reserve +an$ of &ndia 2R+&3 to specif!, in consultation with the 7entral )overnment, the permissi le capital account transactions and the limits upto which foreign exchange ma! e drawn for these such transactions" +ut it shall not impose an! restriction on the drawal of foreign exchange for pa!ments due on account of amorti%ation of loans or for depreciation of direct investments in the ordinar! course of usiness" Accordingl!, the R+& has issued notifications governing capital account transaction" TheFE*A >otification >o" 14-??? dated 30@0-??? contains the list of permissi le capital account transactions as well as list of prohi ited capital account transactions" The permitted capital account transactions have een classified into two categories80 - Kumar Nirmal Prasad, Dr. N.B. Road, Nepali Shiv Mandir, Tinsukia (Assam 7 !"#$% &on'a(' No.) *$77+*7*!7, ,mail) Kumarnirmalprasad-.mail.(om Blo.s) ///.d0nami('u'orial.1lo.spo'.in2 ///.(p'(/a.1lo.spo'.(om
Foreign trade, ;ther current usiness #ervices, and #hort0term an$ing and credit facilities in the ordinar! course of usiness9 &nterest on loans and >et income from investments,
Remittances for living expenses of parents, spouse and children residing a road, and
Foreign travel, Education and *edical care of parents, spouse and children"
&n the a ove definition, the words Dwithout pre/udice to the generalit! of the foregoing such transaction includesE impl! that even if the transactions listed a ove ma! fit into the definition of capital account transactions, such transactions shall e treated current account transactions" For example, resident of &ndia imports goods from outside &ndia on a short term credit 2for a period of less than F months3, he is creating a lia ilit! outside &ndia and thus, it can e treated a capital account transaction ut, it is specificall! included in the a ove definition as a current account transaction" Prohibite' $a#ital Account Transactions The drawal for following transactions are totall! prohi ited" >o R+& permission is accorded to such trnasactions8 1" Transactions with +hutan or >epal for travelling, trade or otherwise" &t is permitted in &ndian currenc! onl!" -" 7ommision on account of exports to /oint ventures or :holl! owned su sidiaries 2:;#3 3" 7ommision on export under Rupee #tate 7redit Route except 1?G commission on export of tea and to acco" H" pa!ment related to call ac$ telephone charges" @" remittance out of lotter! winnings, racing, riding or li$e games" F" remittance for purchase of lotteries, anned maga%ines, foot all pollls, sweepta$es etc" 7" Aa!ment for mone! circulations schemes, mone! ma$ing schemes, ogus transactions" Powers of Reserve Bank of In ia Un er Forei!n E"c#an!e Mana!e$ent Act% The o /ective of FE*A is to consolidate and amend the law relating to foreign exchange with the o /ective of facilitating external trade and pa!ments and for promoting the orderl! development and H Kumar Nirmal Prasad, Dr. N.B. Road, Nepali Shiv Mandir, Tinsukia (Assam 7 !"#$% &on'a(' No.) *$77+*7*!7, ,mail) Kumarnirmalprasad-.mail.(om Blo.s) ///.d0nami('u'orial.1lo.spo'.in2 ///.(p'(/a.1lo.spo'.(om
authori%ed person9 ma$e an! pa!ment to or for the credit of an! person resident outside &ndia in an! manner9 receive otherwise through an authori%ed person, an! pa!ment ! order or on ehalf of an!
person resident outside &ndia in an! manner9 reasona le restrictions for current account transactions as ma! e prescri ed"
An& #erson ma& sell or 'raw foreign exchange to or from an authori,e' #erson for a ca#ital account transaction- The eser*e !an+ ma&( in consultation with the $entral .o*ernment( s#ecif& :
an! class or classes of capital account transactions which are permissi le9 the limit up to which foreign exchange shall e admissi le for such transactions
/owe*er( the
eser*e !an+ cannot im#ose an& restriction on the 'rawing of foreign eser*e !an+ can( b& regulations( #rohibit(
exchange for #a&ments 'ue on account of amorti,ation of loans or for 'e#reciation of 'irect in*estments in the or'inar& course of business- The restrict or regulate the following :) Transfer or issue of an! foreign securit! ! a person resident in &ndia9 Transfer or issue of an! securit! ! a person resident outside &ndia9 Transfer or issue of an! securit! or foreign securit! ! an! ranch, office or agenc! in &ndia of a
person resident outside &ndia9 An! orrowing or lending in foreign exchange in whatever form or ! whatever name called9 An! orrowing or tending in rupees in whatever form or ! whatever name called etween a
person resident in &ndia and a person resident outside &ndia9 .eposits etween persons resident in &ndia and persons resident outside &ndia9
@ Kumar Nirmal Prasad, Dr. N.B. Road, Nepali Shiv Mandir, Tinsukia (Assam 7 !"#$% &on'a(' No.) *$77+*7*!7, ,mail) Kumarnirmalprasad-.mail.(om Blo.s) ///.d0nami('u'orial.1lo.spo'.in2 ///.(p'(/a.1lo.spo'.(om
person resident in &ndia9 Ac'uisition or transfer of immova le propert! in &ndia, other than a lease not exceeding five
!ears, ! a person resident outside &ndia9 )iving of a guarantee or suret! in respect of an! de t, o ligation or other lia ilit! incurred
2i3 ! a person resident in &ndia and owed to a person resident outside &ndia or 2ii3 ! a person resident outside &ndia" A person, resident in &ndia ma! hold, own, transfer or invest in foreign currenc!, foreign securit! or an! immova le propert! situated outside &ndia if such currenc!, securit! or propert! was ac'uired, held or owned ! such person when he was resident outside &ndia or inherited from a person who was resident outside &ndia" A person resident outside &ndia ma! hold, own, transfer or invest in &ndian currenc!, securit! or an! immova le propert! situated in &ndia if such currenc!, securit! or propert! was ac'uired, held or owned ! such person when he was resident in &ndia or inherited from a person who was resident in &ndia" The eser*e !an+ ma&( b& regulation( #rohibit( restrict( or regulate establishment in "n'ia of
a branch( office or other #lace of business b& a #erson resi'ent outsi'e "n'ia( for carr&ing on an& acti*it& relating to such branch( office or other #lace of business- E*er& ex#orter of goo's an' ser*ices must : Furnish to the Reserve +an$ or to such other authorit! a declaration in such form and in such e specified, containing true and correct material particulars, including the amount
manner as ma!
representing the full export value or, if the full export value of the goods is not ascertaina le at the time of export, the value which the exporter, having regard to the prevailing mar$et conditions, expects to receive on the sale of the goods in a mar$et outside &ndia9 Furnish to the Reserve +an$ such other information as ma! e re'uired ! the Reserve +an$
for the purpose of ensuring the reali%ation of the export proceeds ! such exporter" The Reserve +an$ ma!, for the purpose of ensuring that the full export value of the goods or such reduced value of the goods as the Reserve +an$ determines, having regard to the prevailing mar$et conditions, is received without an! dela!, direct an! exporter to compl! with such re'uirements as it deems fit"
F Kumar Nirmal Prasad, Dr. N.B. Road, Nepali Shiv Mandir, Tinsukia (Assam 7 !"#$% &on'a(' No.) *$77+*7*!7, ,mail) Kumarnirmalprasad-.mail.(om Blo.s) ///.d0nami('u'orial.1lo.spo'.in2 ///.(p'(/a.1lo.spo'.(om
AUT&ORISED PERSON AND PO'ERS OF RBI An IAuthorised AersonI under FE*A, is a person who is authorised ! Reserve +an$ to deal in Foreign Exchange" For eing registered as an IAuthorised AersonI, necessar! application alongwith relevant documents has to e furnished to Reserve +an$" An IAuthorised AersonI is also, not given a free hand to deal in foreign Exchange" ,e has to furnish details and information, to Reserve +an$ from time to time as ma! e re'uired ! it" eser*e !an+0s #owers to issue 'irections to authorise' #erson: 213 The reserve +an$ ma!, for the purpose of securing compliance with the provisions of this Act and of an! rules, regulations, notifications or directions made thereunder, give to the authorised persons an! direction in regard to ma$ing of pa!ment or the doing or desist from doing an! act relating to foreign exchange or foreign securit!" 2-3 The Reserve +an$ ma!, for the purpose of ensuring the compliance with the provisions of this Act or of an! rule, regulation, notification, direction or order made thereunder, direct an! authorised person to furnish such information, in such manner, as it deems fit" 233 :here an! authorised person contravenes an! direction given ! the Reserve +an$ under this Act or fails to file an! return as directed ! the Reserve +an$, the Reserve +an$ ma!, after giving reasona le opportunit! of eing heard, impose on the authorised person a penalt! which ma! extend to ten thousand rupees and in the case of continuing contravention with an additional penalt! which ma! extend to two thousand rupees for ever! da! during which such contravention continues" Power of eser*e !an+ to ins#ect authorise' #erson: 213 The Reserve +an$ ma!, at an! time, cause an inspection to e made, ! an! officer of the Reserve +an$ speciall! authorised in writing ! the Reserve +an$ in this ehalf, of the usiness of an! a thorised person as ma! appear to it to e necessar! or expedient for the purpose of0 2a3 verif!ing the correctness of an! statement, information or particulars furnished to the Reserve +an$9 2 3 o taining an! information or particulars which such authorised person has failed to furnish on eing called upon to do so9 2c3 securing compliance with the provisions of this Act or of an! rules, regulations, directions or orders made thereunder" 2-3 &t shall e the dut! of ever! authorised person, and where such person is a compan! or a firm, ever! director, partner or other officer of such compan! or firm, as the case ma! e, to produce to an! officer ma$ing an inspection under su 0section 213, such oo$s, accounts and other documents in his 7 Kumar Nirmal Prasad, Dr. N.B. Road, Nepali Shiv Mandir, Tinsukia (Assam 7 !"#$% &on'a(' No.) *$77+*7*!7, ,mail) Kumarnirmalprasad-.mail.(om Blo.s) ///.d0nami('u'orial.1lo.spo'.in2 ///.(p'(/a.1lo.spo'.(om
Meanin! of (oo s an Services an O)*i!ations of E"+orter of (oo s an Services% D)oodsE is not defined in FE*A and hence its definition under other statutes as well its meaning in commercial parlance needs to e examined" )oods is defined in #ection - 273 as JEver! $ind of movea le propert! other than actiona le claims and mone!9 and includes stoc$s and shares, growing crops, grass and things attached to or forming part of the land which are agreed to e severed efore sale or under the contract of sale"1 Trademar$s, cop!rights, patent rights, goodwill, electricit!, water and gar are all considered as goods" 6nder sec" -2d3 of the Forward 7ontract 2Regulation3 Act, 19@-, )oods means ever! $ind of mova le propert! other than actiona le claims, mone! and securities" The term Actiona le 7laims means a claim to an! de t, other than a de t secured ! mortgage of immova le propert! or h!pothecation or pledge of mova le propert!" I#erviceI means service of an! description which is made availa le to potential users and includes the provision of facilities in connection with an$ing, financing, insurance, medical assistance, legal assistance, chit fund, real estate, transport, processing, suppl! of electrical or other energ!, oarding or lodging or oth, entertainment, amusement or the purve!ing of news or other information, ut does not include the rendering of an! service free of charge or under a contract of personal service" 1bligations of Ex#orter of .oo's an' Ser*ices The eser*e !an+ ma&( b& regulation( #rohibit( restrict( or regulate establishment in "n'ia of
a branch( office or other #lace of business b& a #erson resi'ent outsi'e "n'ia( for carr&ing on an& acti*it& relating to such branch( office or other #lace of business- E*er& ex#orter of goo's an' ser*ices must : Furnish to the Reserve +an$ or to such other authorit! a declaration in such form and in such e specified, containing true and correct material particulars, including the amount
manner as ma!
representing the full export value or, if the full export value of the goods is not ascertaina le at the time of export, the value which the exporter, having regard to the prevailing mar$et conditions, expects to receive on the sale of the goods in a mar$et outside &ndia9 Furnish to the Reserve +an$ such other information as ma! e re'uired ! the Reserve +an$
for the purpose of ensuring the reali%ation of the export proceeds ! such exporter" The Reserve +an$ ma!, for the purpose of ensuring that the full export value of the goods or such reduced value of the goods as the Reserve +an$ determines, having regard to the prevailing mar$et conditions, is received without an! dela!, direct an! exporter to compl! with such re'uirements as it deems fit"
K Kumar Nirmal Prasad, Dr. N.B. Road, Nepali Shiv Mandir, Tinsukia (Assam 7 !"#$% &on'a(' No.) *$77+*7*!7, ,mail) Kumarnirmalprasad-.mail.(om Blo.s) ///.d0nami('u'orial.1lo.spo'.in2 ///.(p'(/a.1lo.spo'.(om
9 Kumar Nirmal Prasad, Dr. N.B. Road, Nepali Shiv Mandir, Tinsukia (Assam 7 !"#$% &on'a(' No.) *$77+*7*!7, ,mail) Kumarnirmalprasad-.mail.(om Blo.s) ///.d0nami('u'orial.1lo.spo'.in2 ///.(p'(/a.1lo.spo'.(om