Fema tell the way in which foreign currency comes in india

and goes out of india

Contents
• Introduction.
• Objective and salient features.
• Important sections of FEMA.
• Mechanism under FEMA.
• Current Account.
• Capital Account.
• L. R. S.
• Penal Provisions.
• Capital Account Convertibility - Approach
History of Foreign exchange
• Exchange control was introduced as a temporary measure in 1939.
• Placed on statutory basis in 1947 (FERA 1947)
• FERA 1947 replaced by FERA 1973.
• FERA 1973 replaced by FEMA 1999.
• Exchange control in existence – 72 years.
• Can be phased as –
- 5 decades of control;
- a decade of reforms;
- a decade of FEMA.
Foreign exchange Reserves
USD Million 3,77,773.7 as on 15th march 2019

Government Foreign
Exchange Reserves

Export
FEMA, 1999-Objectives..
• FEMA, 1999 came into effect from 01.06.2000.
• To consolidate the law relating to foreign exchange with
the objective of facilitating external trade and
payments and for promoting the orderly development
and maintenance of foreign exchange market in
India.
• It extends to whole of India. It shall also apply to all
branches, offices and agencies outside India owned or
controlled by a person resident in India and also to any
contravention thereunder committed outside India by
any person to whom this Act applies.
OBJECTIVES OF FEMA

OBJECTIVES OF FEMA

1
2
The objective of FEMA is to
Promoting the orderly development
consolidate and amend the law
and maintenance of foreign
relating to facilitating external
exchange markets in India.
trade and payments.
Meaning of Foreign Exchange means, exchange of currency of one
country into the currency of another country.

Meaning of Foreign Trade means movement of goods and services

across the national boundaries.
DIMENSIONS TO TRADE FINANCE

DIMENSIONS TO
TRADE FINANCE

TRADE CONTROL EXCHANGE BANK POLICY

CONTROL
EXPORT-IMPORT TRADE -
REGULATORY FRAMEWORK
EXCHANGE CONTROL
TRADE CONTROL
1.PHYSICAL MOVEMENT OF GOODS IN 1. PHYSICAL MOVEMENT OF FUNDS
AND OUTSIDE INDIA
2. RBI THROUGH FEMA
2.MIN OF COMMERCE– DGFT
3.TRADE POLICY 2015-2020 3. THROUGH Ads
4.HANDBOOK OF 4. CUSTOMS FOR ACTUAL
PROCEDURES-2VOLS EXPORTS AND IMPORTS:END
5.HS CLASSIFICATION CODE BOOK
6.PUBLIC NOTICES
USE
5. ENFORCEMENT DIRECTORATE:
CHECK FOR ADHERENCE AND
FOR VIOLATIONS, BANKS TO
MAINTAIN PROPER RECORDS
Other Institutions
• FEDAI:
• APEX BODY OF ADs AND AMCs
• FRAMES RULES CHARGES,BOOK
OF RULES AMENDED WEF 1ST OCT
1999
• AP DIR CIRCULARS
• PRESCRIBES FLOOR LIMITS FOR
TRADING
• ECGC:
• CREDIT INSURANCE
• ISSUES POLICIES TO EXPORTERS
AND GUARANTEES TO BANKS[FOR
EXPORTS]
• POLICIES PROTECT EXPORTERS
AGAINST RISK OVERSEAS(
IMPORTER’S DEFAULT)
• GUARANTEES PROTECT BANKERS
IN CASE OF DEFAULT…OF
ADVANCES TO EXPORTERS
 Salient features of FEMA
• Govt. / RBI – powers clearly demarcated.
• FX transactions categorised – Current / Capital
• Residential status on the basis of stay as well as purpose.
• Civil Law –
• No arrest.
• Prosecution to prove charges against accused.
• Investigation and adjudication segregated.
• A new concept - Compounding introduced.
• Compounding in a definite time-frame (180 days.

FEMA

Management of Controlling
Repaced FERA Effective 1st
Foreign Authorities-RBI Civil Law Compounding
1973 June 2000
Exchange & ED
BROAD STRUCTURE OF FEMA
• There are 49 sections in FEMA
Sec 46. Power of C.G. to make rules under FEMA
Section 47 - Power of RBI to make regulations in Fema India

Chapters Name of Chapter Sections

I Preliminary 1–2
II Regulation and management of 3–9
foreign exchange
III Authorised person 10 – 12
IV Contravention and penalties 13 – 15
V Adjudication and appeal 16 – 35
VI Directorate of enforcement 36 – 38
VII Miscellaneous 39 – 49
DIFFERENCE BETWEEN FERA AND FEMA
FEMA
1. FEMA is much simpler, and
consists of only 49 sections.
2. Terms like capital account
transaction, current account
transaction person, service etc.,
have been defined in detail in
FEMA
3. 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.
FERA
1. FERA consisted of 81 sections, and
was more complex
2. Terms like capital account
transaction, current account
transaction, person, service etc.
were not defined in FERA.
3. Any offence under FERA, was a
criminal offence , punishable with
imprisonment as per Code of
Criminal Procedure, 1973
 Mechanism under FEMA
Passed by the
Parliament –
the Legislature

Current Account by the

Act – FEMA Government

Rules –
Current A/C
AP Dir Circulars
Notifications to APs

Regulations-
Notified in the
Capital A/C
Gazette – by the All aspect of Forex
Executive transactions
by the RBI
Capital Account by
the RBI
 FEMA

Controlling Implementation
Authority Authority

Directorate
RBI of
Enforcement
Authorized Person Categorization..
 AD Cat – I  All current & capital account
- Com. Banks transactions.
- State Co-op Banks
- Urban Co-op Banks
 AD Cat – II  Specified non-trade current
account transactions.
- Up Graded FFMCs
- Co-op. Banks
- RRBs
- Others
 Transactions incidental to
 Select Financial and other
their FE activities.
Institutions
 Purchase of FC & sale of FE
 FFMCS
for pvt /business visits.
Balance of payment
Meaning of balance of payment
• Balance of payments of a country as an annual statement of
accounts of all economic transactions, between the resident of the
country with the rest of the world (i.e. other countries).
• Balance of payment is summary statement of accounts of such
receipts and payments.
• All receipts and payments takes place in foreign exchange.
Forex Transactions…
• Types of transactions :-
Current A/c ; and
Capital A/c.
• Rational :
Current A/c : The transactions which are not prohibited are permitted.
[ Sec. 5 freedom to draw FE ]
Capital A/c : The transactions which are not permitted are restricted.
[ Sec. 6 RB, may by regulation prohibit, restrict or regulate.
Terms of Payment In
International Trade
Letter of Credit -Process
Current A/c transactions..
• Meaning: A transaction other than Capital account
transaction and includes……
- payment due in connection with foreign trade,
other current business, services…
- interest on loans and net income from
investments;
- remittances for living expenses of parents,
spouse and children residing abroad; and
- expenses in connection with foreign travel,
education and medical care of parents, spouse and
children.
Current A/c contd…
•Governed by: Sec. 5 read with Current Account
rules notified by Govt. and AP (Dir) circulars issued
by RBI.
•Compliance:
Rule No. 3 - Sch. I - Prohibition.
[ Items - 8 ]
Rule No. 4 - Sch. II - Govt. approval.
[ Items - 10 ]
Rule No. 5 – Sch. III – RBI approval
[ Items – 13 ]
All other current a/c transactions freely permitted
Capital A/c transactions….

• Meaning: Means a transaction which alters the assets or liabilities,

including contingent liabilities, outside India of persons resident in India or
assets or liabilities in India of persons resident outside India, and includes
transactions referred to in sub-sec.(3)of Sec. 6.

• Governed by : Sec. 6 read with Regulations notified by RBI & AP (Dir) Cir.
Issued by RBI.

• Regulations: Notf. No. FEMA. 1/2000 read with Nos. 2 to 25, 71 & 101.

• Notf. No. 1 :
• Sch I- classes of cap. a/c transactions of persons resident in India;
• Sch II – classes of cap a/c transactions of persons resident out side India.
Foreign Exchange Department in
Banks
Front Desk
• Forex Service Manger in Branch- Will handle Original Documents in
Branch and liaison with customer
Back Office- Trade Finance Center
• Export Dept-Collection Documents
• Export Financing Department
• Import Dept
• Capital Account Dept-FDI
• RBI Reporting Dept
• Forward Contract Dept
• Letter of Credit
• Bank Guarantee Dept
Foreign Direct Investment
Diagrammatic presentation
Foreign
Investments

Other Investment
Portfolio Venture Capital
FDI investments on non
Investments Investments
repartriable
basis

SEBI regd.
FVCIs
Automati Govt
FIIs NRI, PIO
c route Route
VCF, NRI, PIO
IVCUs

PROI
NRI,
FII
PIO

27
External Commercial
Borrowings
ECB Policy
• External Commercial Borrowings (“ECB”) is a mechanism used in India to assist
Corporates in accessing cheaper foreign funds by Indian corporates
• These are commercial loans raised by ‘eligible resident borrower’ from
‘recognised non-resident entities’ and should confirm to parameters specified
in ECB guidelines such as minimum maturity period, permitted end-use of
funds, maximum all-in-cost ceilings etc. These parameters apply in totality and
not on a standalone basis.
• Trade Credit refers to the credits extended by the overseas supplier, bank and
financial institution for maturity up to 5 (five) years for imports into India. Trade
Credit includes supplier’s credit or buyer’s credit.
• Supplier’s Credit relates to the credit extended by overseas supplier for
imports into India.
• Buyer’s Credit refers to the loan for payment of imports into India arranged by
the importer from overseas bank or financial institution.
• Government permits the ECBs as an additional source of financing for
expanding the existing capacity as well as for fresh investments.
• The ECB policy of the Government seeks to emphasise the priority of investing
in the infrastructure and core sectors such as Power, telecom, Railway Roads,
Urban infrastructure etc.
• There is also emphasis on the need of capital for Small and Medium scale
enterprises
Overseas Investment

Investment in JV or WOS not exceeding 400% of Net

Worth as on date of last Audited Balance Sheet

Includes total fin. commitments of all JVs / WOS put

together & includes 100% of equity, loans, guarantees
& 50% of performance guarantees

Ceiling of 400% not applicable if investment made out

of EEFC a/c
TRADE
IMPORT/EXPORT
Trade – Imports..
• Importis regulated by DGFT as per FTP. ADs
should ensure that import is in conformity with
FTP and Current A/c. transactions Rules, 2000.
ADs should also follow normal banking
procedures and adhere to the provisions of
UCPDC as well as R & D Cess Act, 1986, Income
Tax Act and KYC guidelines issued by RBI.
Trade – Exports…
• Export trade is regulated by DGFT as per FTP – Sec.7
of FEMA. Applicable Rules / Regulations are
• Current A/c. Rules (sch.II and III)
• FEMA Notification No.8, 9, 14 and 23
• RBI guidelines in respect of exports to erstwhile USSR
• By RBI in respect of Romania.

• Exemption from declarations are listed in Regulation

4 of FEMA 23/2000.
• Latest development : Online Payment Gateway
Service Provider. [ OPGSP ]. Value per transaction
enhanced from USD 500 to USD 3000.
Foreign Currency Accounts..
• Governed by Notf. No. 10/ 2000.
• Types of Accounts permitted:
- EEFC
- RFC
- RFC(D)
- EFC
- OTHERS (Diplomats, non-diplomats, Ads,
shipping/ airline companies, LIC, GIC,
students, trading/non-trading offices, etc).
Liberalised Remittance Scheme…
• Any Resident can remit $250,000 in a financial year: for
any current (except Schedule I and II) or capital account
transactions.
• This is a new facility in addition to all the existing
facilities.
• Only for individuals (not for corporate, trusts firms, etc);
GP to open foreign currency a/c abroad and acquire
immovable property out of this amount.
• Requirement- PAN No & 1 year banking relation.
• An application cum declaration has been prescribed .
Latest liberalisations - individuals
• NRIs can be joint holders in Resident – SB / EEFC / RFC accounts;
• Residents can be joint holders in NRE / FCNR accounts;
• Resident can gift shares / Debentures up to USD 50,000 per financial
year;
• Sale proceeds of FDIs can be credited to NRE / FCNR account;
• Gift to NRIs can be credited to NRO account in Rupees;
• Loans to close relatives can be given in Rupees;
• Residents can repay the loans given to close relatives;
• Residents can bear Medical Expenses of NRIs (close relatives);
• FNCR (B) allowed in permitted currencies.
• Income and sales proceeds of assets held abroad under LRS need
not be repatriated on return to India.
FEDAI EXAM IN FOREIGN EXCHANGE-MANDATORY

As per FEDAI guidelines issued to its member banks, this examination

is expected to be passed by each employee working in any area of
foreign exchange business of the bank.
THANKS