F.E.R.A . AND F.E.M.A.(FOREIGN EXCHANGE REGULATION ACT AND FOREIGN EXCHANGE MANAGEMENT ACT)Presented by :-Nikhil AgarwalNeha GargNeha BaliwalMegha SinghMegha mahasvariNavdeep KaurMohit GoyalNikhil ChaddaNitin SachdevMohit Badera
Historical Background :•Historical Background The Foreign ExchangeRegulation Act of 1973 (FERA) Enacted in 1973•In the backdrop of acute shortage of ForeignExchange in the country.• FERA had a controversial 27 year stint duringwhich many bosses of the Indian Corporate worldfound themselves at the mercy of theEnforcement Directorate (E.D.).
Foreign Exchange Regulation Act• The Foreign Exchange Regulation Act (FERA) was legislation passed by the Indian Parliament in 1973 by the government of Indira Gandhi• It came into force with effect from January 1, 1974.• FERA imposed stringent regulations on certain kinds of payments.• It deals in foreign exchange and securities and the transactions which had an indirect impact on the foreign exchange and the import and export of currency.• The purpose of the act, inter alia, was to "regulate certain payments, dealings in foreign exchange and securities, transactions indirectly affecting foreign exchange and the import and export of currency, for the conservation of foreign exchange resources of the country".• FERA was repealed in 1999 by the government of Atal Bihari Vajpayee.• It replaced by the Foreign Exchange Management Act,which liberalised foreign exchange controls and restrictions on foreign investment.
Foreign Exchange Management Act• The Foreign Exchange Management Act(FEMA) was an act passed in the winter session of Parliament in 1999 which replaced Foreign Exchange Regulation Act.• This act seeks to make offenses related to foreign exchange civil offenses.• It extends to the whole of India.• FEMA, which replaced Foreign Exchange Regulation Act(FERA).• It had become the need of the hour since FERA had become incompatible with the pro-liberalisation policies of the Government of India.• FEMA has brought a new management regime of Foreign Exchange consistent with the emerging framework of the World Trade Organisation(WTO).• It is another matter that the enactment of FEMA also brought with it the Prevention of Money Laundering Act 2002, which came into effect from 1 July 2005.
Objective Of F.E.R.A &F.E.MA• 1) To help RBI in maintaining exchange rate stability.• 2) To conserve precious foreign exchange.• 3) To prevent/regulate Foreign business in India.• 4) To consolidate and amend the law relating to foreign exchange with the object to facilitating external trade and payments and for promoting the foreign exchange market in India.• 5) So the new law is for the management of foreign exchange instead of regulation of foreign exchange.• 6) The draconian provisions were droped out in new enactment.• 7) The size of the bare act got reduced to 49 sections in place of 81 sections in FERA
Objectives 8) To facilitate external trade and payments 9) To promote the orderly development and maintenance of foreign exchange market
DIFFERENCE BETWEEN FERA AND FEMA :1)-The objective of FERA was to conserve forex and to prevent its misuse.• The objective of FEMA is to facilitate external trade and payments and maintenance of forex market in india.
2-Violation of FERA was a criminal offence• whereas violation of FEMA is a civil offence.3- Offences under FERA were not compoundable• Offences under FEMA are compoundable.4- Citizenship was a criteria to determine the residential status of a person underFERA.• while stay of more than 182 days in India is the criteria to decide residential status under FEMA.5- Almost all current account transactions are free, except a few.
FERA & FEMA• Object to conserve and • To facilitate external prevent misuse trade and payments• Violation was Criminal • Violation is a civil Offence and was non offence and is compoundable compoundable• It was a draconian • It is a civil law police law 9
Current Account and Capital Account transactionsUnder the FEMA regime, the thrust was on regulationand control of the scarce foreign exchange, whereasunder the FEMA, the emphasis is on the managementof foreign exchange resources.Under FERA it was safe to presume that anytransaction in foreign exchange or with a non-residentwas prohibited unless it was generally or speciallypermitted.FEMA has formally recognised the distinction betweencurrent account and capital account transactions.
• Two golden rules or principles in FEMA are mentioned as follows: all current account transactions are permitted unless otherwise prohibited. all capital account transactions are prohibited unless otherwise permitted.
Current Account Transactions• Any person may sell or draw foreign exchange to or from an authorized person if such sale or drawal is a current account transaction.• 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 required from time to time. 12
Current Account Transactions Contd. The definition is inclusive and any expenditure which is not a capital account transaction will be current account transaction. It includes:• payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business• payments due as interest on loans and as 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 13
Current Account Transactions Few Examples• Payment for imports of goods• Remittance of interest on investment made and funds borrowed from abroad after tax deductions• Remittance of Dividend if the investment was allowed without any condition• Booking with Airlines/Shipping• Salary/remuneration to Foreign Directors subject to restrictions in any other law 14
Capital Account Transactions• "capital account transaction" 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 like: – Changes in Assets/ Liabilities – Transfer/ issue of security – Borrowing/ Lending – Export, import or holding of currency or currency notes – Giving guarantee• Capital Account Transaction are deemed to be prohibited unless permitted and Current Account Transactions are deemed to be permitted unless prohibited 15
Penalties for Contravention under FEMA• The Penalty could be up to thrice the sum involved where amount is quantifiable• If the Amount is not quantifiable , penalty upto Rs 2 lacs can be imposed• If contravention is of continuing nature, further penalty up to Rs 5000 per day during which the contravention continues can be imposed 16
Repatriation“Repatriate to India" means bringing into India the realized foreign exchange and-• the selling of such foreign exchange to an authorized person in India in exchange for rupees, or• the holding of realized amount in an account with an authorized person in India to the extent notified by the Reserve Bank,• It includes use of the realized amount for discharge of a debt or liability denominated in foreign exchange 17
Manner of RepatriationIt can be done in the following manner:• Sell it to Authorized Person in India in exchange for Rupees• Retain in an account with an authorized dealer• Use it for discharge of a debt or liability denominated in foreign exchange in the manner specified by RBI 18
Administration Of The Act- The rules regulations and norms pertaining to many sections are laid down by RBI in consultation with central Government.- The Act requires central Government to appoint,• Adjudicating Authorities for holding enquires related to the contravention of the Act• one or more Special Directors (appeals) to hear appeals against the order of the Adjudicating authorities- Central Government shall have to establish1. An Appellate Tribunal for foreign Exchange to hear appeals against the order of the Adjudicating Authorities and the Special Directors2. A Director of Enforcement with a Director and such officers or class of officers as it thinks fit for taking up for investigation the contravention under this Act
Export of goods and services Every exporter of goods shall:(a) Furnish to the Reserve bank or to such other authority a declaration in such form as may be specified, containing true and correct material, including the amount representing the full export value, if the full export value of goods is not ascertainable at the time of export , the value which the exporter, having in regard to the prevailing market conditions, expects to receive on the sale of the goods in the market outside India;(b) Furnish to the Reserve bank all information as may be required by the reserve bank for the purpose of ensuring the realization of export proceeds by such exporter.
The Reserve may, for the purpose of ensuring that the full export value of the goods as the Reserve bank determines, having regard to the prevailing market conditions, is received without any delay. Every exporter of services shall furnish to the Reserve bank a declaration in such form as may be specified, containing the true and correct material particulars in relation to payment for such services.
Realization and Repatriation of Foreign ExchangeWhen any amount of foreign exchange is due or hasaccrued to any person shall take all reasonable steps torealize and repatriate to India such foreign exchangewithin such period and in such manner as may bespecified by the Reserve bank.