2. FEMA 1999
FEMA stands for ‘ Foreign Exchange Management Act ’, an official Act that consolidates and
amends laws regulating foreign exchange in India. FEMA was enacted by the Parliament of India in
the winter session of 1999 to replace the Foreign Exchange Regulation Act (FERA) of 1973. The
RBI proposed FEMA in 1999 to administrate foreign trade and exchange transactions. The Foreign
Exchange Management Act officially came into force on 1st June 2000.
It is a set of regulations that empowers the Reserve Bank of India to pass regulations and enables the
Government of India to pass rules relating to foreign exchange in tune with the foreign trade policy of
India.
The legal framework for administration of foreign exchange transactions in India is provided by the
Foreign Exchange Management Act, 1999.
Foreign Exchange (forex or FX) is a global market for exchanging national currencies with
one another. The market determines the value, also known as an exchange rate, of the
majority of currencies. Foreign exchange can be as simple as changing one currency for
another at a local bank. It can also involve trading currency on the foreign exchange market.
3. Objectives of FEMA?
The main objective of FEMA was to help facilitate external trade and payments in India. It was also meant
to help orderly development and maintenance of foreign exchange market in India. It defines the
procedures, formalities, dealings of all foreign exchange transactions in India. These transactions are
mainly classified under two categories — Current Account Transactions and Capital Account Transactions.
Where is FEMA applicable in India?
FEMA (Foreign Exchange Management Act) is applicable to the whole of India and equally applicable to
the agencies and offices located outside India (which are owned or managed by an Indian Citizen). The
head office of FEMA is situated at New Delhi and known as the Enforcement Directorate.
What Is the Foreign Exchange Market?
The foreign exchange market (also known as forex, FX, or the currencies market) is an over-
the-counter (OTC) global marketplace that determines the exchange rate for currencies
around the world. Participants in these markets can buy, sell, exchange, and speculate on the
relative exchange rates of various currency pairs.
4. Foreign Exchange Regulation Act (FERA) 1973
Which Act did FEMA replace?
FEMA replaced an act called Foreign Exchange Regulation Act (FERA).
What is FERA and when was it passed?
FERA (Foreign Exchange Regulation Act) legislation was passed in 1973. It came into effect on January 1, 1974. FERA was
passed to regulate the financial transactions concerning foreign exchange and securities. FERA was introduced when the
Forex reserves of the country were very low.
Why was FERA replaced?
FERA did not comply with the post-liberalization policies of the Government.
What is the main change brought in FEMA compared to FERA?
It made all the criminal offences as civil offences.
5. Main Features of Foreign Exchange
Management Act, 1999
It gives powers to the Central Government to regulate the flow of payments to and from a person situated
outside the country.
All financial transactions concerning foreign securities or exchange cannot be carried out without the
approval of FEMA. All transactions must be carried out through “Authorized Persons.”
In the general interest of the public, the Government of India can restrict an authorized individual from
carrying out foreign exchange deals within the current account.
Empowers RBI to place restrictions on transactions from capital Account even if it is carried out via an
authorized individual.
As per this act, Indians residing in India, have the permission to conduct a foreign exchange, foreign
security transactions or the right to hold or own immovable property in a foreign country in case security,
property, or currency was acquired, or owned when the individual was based outside of the country, or
when they inherit the property from individual staying outside the country.
6. Structure of FEMA.
The Head Office of FEMA, also known as Enforcement Directorate, headed by the
Director is located in New Delhi.
There are 5 zonal offices in Delhi, Mumbai, Kolkata, Chennai, and Jalandhar, each office is
headed by Deputy Director.
Every 5 zones are further divided into 7 sub-zonal offices headed by Assistant Directors
and 5 field units headed by Chief Enforcement Officers.
7. Applicability of FEMA Act
• exports of any foods and services from India to outside, foreign currency, that is any
currency other than Indian currency,
• foreign exchange,
• foreign security,
• Imports of goods and services from outside India to India,
• securities as defined in Public Debt Act 1994,
• banking, financial and insurance services,
• sale, purchase and exchange of any kind (i.e. Transfer),
• any overseas company that is owned 60% or more by an NRI (Non Resident
Indian) and
• any citizen of India, residing in the country or outside (NRI)
