Based on the information provided: 1. Remittance of lottery winnings does not require approval under FEMA since it falls under current account transactions. 2. Payment of royalty up to 10% of local sales also does not require approval since it is considered as a normal business transaction. Royalty payments are generally allowed under the automatic route up to 10% of sales without any approval. Hence, approval of the central government is not required in both the cases mentioned above under FEMA 1999. The transactions can be undertaken under the automatic route without any approval.

1. FOREIGN EXCHANGE REGULATION ACT (FERA) AND
FOREIGN EXCHANGE MANAGEMENT ACT (FEMA)
PRESENTED BY
ADVOCATE HITESH RAMCHANDANI

2. 2
FOREIGN EXCHANGE MANAGEMENT
ACT, 1999

3. 3
• Objectives
To facilitate external trade and payments
To promote the orderly development and
maintenance of foreign exchange market

4. 4
Foreign exchange transactions were regulated
by Foreign exchange regulation act (FERA),
1973
Following the liberalization ushered in 1991
some amendments were made to FERA in
1993 there was a lot demand to bring certain
major changes in FERA in the light of
economic changes took place
Consequently a new act was formed to
replace FERA, known as Foreign exchange
management act (FEMA), 1999
Introduction

5. RBI Permission not needed in FEMA
• As far as facilitating external trade is concerned,
section 5 of the Act removes restrictions on drawal of
foreign exchange for the purpose of current account
transactions. As external trade i.e. import / export of
goods & services involve transactions on current
account, there will be no need for seeking RBI
permissions in connection with remittances involving
external trade. The need to remove restrictions on
current account transactions was necessitated as the
country had given notice to the IMF in August, 1994
that it had attained Article VIII status. This notice
meant that no restrictions will be imposed on
remittances of foreign exchange on account of current
account transactions.

6. Why there was a need to scrap FERA?
a) The Foreign Exchange Regulation Act was replaced by the
Foreign Exchange Management Act as it was an impediment in
India's to go global.
b) India's foreign exchange transactions were governed under the
Foreign Exchange Regulation Act until June 2000. This law had
been enacted in 1973 when the Indian economy was facing a crisis
and foreign exchange had become a precious commodity. But by
the nineties, FERA had outlived its utility and was in fact, an
impediment in India's effort to go global and compete with other
developing countries.
c) Thus, there was a need to scrap FERA and the Foreign Exchange
Management Act, 1999 came into effect on June 1, 2000. However
some of the relevant progresses made, from FERA to FEMA

7. FERA V/s FEMA
DIFFERENCES FERA FEMA
PROVISIONS FERA consisted of 81 sections, and was more complex FEMA is much simple, and consist of only 49
sections.
FEATURES Presumption of negative intention (Mens Rea ) and
joining hands in offence (abatement) existed in FERA
These presumptions of Mens Rea and
abatement have been excluded in FEMA
NEW TERMS IN
FEMA
Terms like Capital Account Transaction, current Account
Transaction, person, service etc. were not defined in
FERA.
Terms like Capital Account Transaction,
current account Transaction person, service
etc., have been defined in detail in FEMA.
DEFINITION OF
AUTHORIZED
PERSON
Definition of "Authorized Person" in FERA was a narrow
one ( 2(b)
The definition of Authorized person has been
widened to include banks, money changes,
off shore banking Units etc. (2 ( c )

8. MEANING OF
"RESIDENT" AS
COMPARED
WITH INCOME
TAX ACT.
There was a big difference in the
definition of "Resident", under FERA, and
Income Tax Act
The provision of FEMA, are in consistent with income Tax
Act, in respect to the definition of term " Resident". Now
the criteria of "In India for 182 days" to make a person
resident has been brought under FEMA. Therefore a person
who qualifies to be a non-resident under the income Tax
Act, 1961 will also be considered a non-resident for the
purposes of application of FEMA, but a person who is
considered to be non-resident under FEMA may not
necessarily be a non-resident under the Income Tax Act, for
instance a business man going abroad and staying therefore
a period of 182 days or more in a financial year will become
a non-resident under FEMA.
PUNISHMENT Any offence under FERA, was a criminal
offence , punishable with imprisonment as
per code of criminal procedure, 1973
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.
QUANTUM OF
PENALTY.
The monetary penalty payable under
FERA, was nearly the five times the
amount involved.
Under FEMA the quantum of penalty has been considerably
decreased to three times the amount involved.

9. APPEAL An appeal against the order of "Adjudicating
office", before " Foreign Exchange Regulation
Appellate Board went before High Court
The appellate authority under FEMA is the
special Director ( Appeals) Appeal against
the order of Adjudicating Authorities and
special Director (appeals) lies before
"Appellate Tribunal for Foreign Exchange."
An appeal from an order of Appellate
Tribunal would lie to the High Court. (sec
17,18,35)
RIGHT OF ASSISTANCE
DURING LEGAL
PROCEEDINGS.
FERA did not contain any express provision on the
right of on impleaded person to take legal
assistance
FEMA expressly recognizes the right of
appellant to take assistance of legal
practitioner or chartered accountant (32)
POWER OF SEARCH
AND SEIZE
FERA conferred wide powers on a police officer not
below the rank of a Deputy Superintendent of
Police to make a search
The scope and power of search and seizure
has been curtailed to a great extent

10. Balance of Payments

11. BALANCE OF PAYMENTS
• It is a double entry system of record of all
economic transactions between the residents
of the country and the rest of the world
carried out in a specific period of time.
• It takes into account the export and import of
both visible and invisible items.
• when we say “a country’s balance of
payments” we are referring to the
transactions of its citizens and government

12. BOP statement includes
• All the receipts on account of goods exported
• Services rendered
• Capital received by residents
• Payments of residents
• Capital transferred to foreign

13. Balance of Trade Balance of Payment
The Balance of Trade includes only visible imports
and exports, i.e. imports and exports of
merchandise, the difference of imports and
exports is called Balance of Trade. If imports are
more than exports, it is unfavourable balance of
trade. If exports exceeds imports, it is favourable
balance of trade.
The Balance of Payments includes all those visible
and invisible items exported from and imported into
the country in addition to exports and imports of
merchandise.
Balance of Trade includes revenues received or
paid on account of imports and exports of
merchandise. It shows only revenue items.
Balance of Payments includes all revenue and
capital items whether visible or non-visible. Balance
of Trade thus form a part of Balance of Payments.
Balance of Trade can be favourable or
unfavourable. If imports are more than exports, it
is unfavourable balance of trade. If exports
exceeds imports, it is favourable balance of trade.
Balance of Payments is always balanced just like
Trading and Profit and Loss A/c of a business.
In case of Balance of Trade, there is no deficit or
surplus balance. The balance shows favourable or
non-favourable. So, external assistance is not
required.
In case of Balance of Payments, any balance, deficit
or surplus is to be financed by external source or
assistance or be utilised.

14. TYPES OF BALANCE OF PAYMENT
• The Balance of Payments statement comprises
four major categories
• Current Account
• Capital Account
• Reserve Accounts
• Errors & Omissions

15. Current Account
• Includes all imports and exports of goods and
services.
• Includes unilateral transfers of foreign aid.
• If the debits exceed the credits, then a country
is running a trade deficit.
• If the credits exceed the debits, then a country
is running a trade surplus.

16. Capital Account
• on receipts side, short term and long-term
capital inflow receipts of foreign direct
investment and foreign debts are posted
• Same items are written in payment side while
making payment.

17. Reserve Accounts
• It shows the foreign exchange position of a
country
• Official reserve account has the records of
foreign official holding and increase reserves
of gold and foreign currencies

18. Errors & Omissions
• The entries under this head relate mainly to
leads and lags in reporting of transactions
• It is of a balancing entry and is needed to
offset the overstated or understated
components.

19. CAUSES OF DISEQUILIBRIUM IN THE
BOP
• Cyclical fluctuations
• Short fall in the exports
• Economic Development
• Rapid increase in population
• Structural Changes
• Natural Calamites
• International Capital Movements

20. MEASURES TO CORRECT ADVERSE BALANCE OF
PAYMENT
EXPORT LED GROWTH
a) Instead Of exporting Raw material should
export Finished Goods
b) Reduction in Export Duties
c) Export Quality Products

21. MEASURES TO CORRECT ADVERSE BALANCE OF
PAYMENT
• REDUCTION IN IMPORTS
a) Import of Only Essential Items
b) Exchange Control
c) Substitutes for Imported Items

22. MEASURES TO CORRECT ADVERSE BALANCE OF
PAYMENT
MISCELLANEOUS
a) Population Control
b) Decrease in Consumption
c) Control of Smuggling

23. Reasons for Deficit Balance
• Government liberalized imports in 1985 this leads to
the increase in imports significantly.
• the Gulf war in 1990’s
• the rapid industrialization (import of capital goods,
technology, etc.)
• the slow growth of invisibles
• the devaluation/depreciation of rupee against
importing countries
• 1990-91 crisis
• less exports

24. Currency
Convertibility

25. Currency Convertibility
• What it is ?
 Convertibility essentially means the ability of
residents and non-residents to exchange domestic
currency for foreign currency, without limit,
whatever be the purpose of the transactions.
• Types Of Currency Convertibility.
 Fully convertible currency.
 Partially convertible currency.
 Non-convertible currency.

26. Rupee
Convertibility

27. Current Account
• Transactions relating to:
- Exchange of goods and services
- Money transfers
- Transactions that are classified in the Current
Accounts.
• In Short, Current account includes all
transactions, which give rise to or use of our
National Income.

28. Current Account Transactions
• All imports and exports of merchandise.
• Invisible Exports and Imports (sale/purchase of
services)
• Inward private remittances (to & fro)
• Pension payments (to & fro)
• Government Grants (both ways)

29. Current Account Convertibility
• Indian scenario - fully convertible.
• Full freedom to both residents and non-residents.
• RBI has placed a cap in creation of a capital asset
• Freedom in respect of payments and transfers for
current international transactions.

30. Capital account
• Inflows and Outflows of capital.
• Borrowing from or Lending to aboard.
• Sales and Purchase of securities aboard.

31. Capital Account Transactions
• Capital Direct Foreign Investments.
• Investment in securities.
• Other Investments.
• Government Loans.
• Short-term investments.

32. Portfolio
Investment .
 Stocks,
 Bonds,
 Bank
 Loans,
 Derivatives.
Direct
Investment.
 Real estate
 Production
facilities
 Equity
investment.
Other
investment.
Holdings in
loans
 Bank
accounts
Currencies
Capital Account Transaction’s
Classification

33. Currently Restrictions : Capital Account
• Limits to companies borrowing abroad.
• Restriction on foreigner investing in India.
• Restriction on amount that FII can hold.
• Purchasing a company is allowed but limit
exit on the amount that can be send.
• Global Diversification of household portfolio
is practically non-existent.

34. Limits to Partial CAC
Limits specified by the RBI:-
• Private visit
• Business travel
• Gift or donation
• Employment /For studies abroad
• Investment : Foreign stock markets
• Borrowings

35. Reasons Favoring Financial Openness & CAC
• Diversification
• NRI Remittances
• Foreign Investment in
• Catalyst for financial market, institutional
development, competition, new technologies &
discipline macro-economic policies.
• Reduction in the size of Black money.
• Induces competition against Indian finance.

36. Reasons favoring Restrictions
• Good times- More inflow; Bad times- More
outflow.
• Misallocation of Capital inflows.
• Export of domestic Savings.
• Entry of Foreign banks can create Unequal
playing field.
• Highly volatile international finance (hot
money)- Higher speculation.

37. Tarapore committee
• Pre-Conditions
Gross fiscal deficit to GDP ratio to come down from a 4.5
%n 1997-98 to 3.5% in 1999-00.
A consolidated sinking fund has to be set up to meet
government's debt repayment needs; financed by RBI.
Inflation rate to be at 3-5 per cent for the 3-year period
1997-2000 .
Gross NPAs of the public sector banking system needs to
be brought down.
RBI should have a Monitoring Exchange Rate Band of plus
minus 5% around a neutral .

38. PERMISSIBLE CAPITAL TRANSACTION IN FEMA
a) Investment by a person resident in India in foreign securities
• b) Foreign currency loans raised in India and abroad by a person resident in India
• c) Transfer of immovable property outside India by a person resident in India
• d) Guarantees issued by a person resident in India in favour of a person resident outside India
• e) Export, import and holding of currency/currency notes
• f) Loans and overdrafts (borrowings) by a person resident in India from a person resident outside India
• g) Maintenance of foreign currency accounts in India and outside India by a person resident in India
• h) Taking out of insurance policy by a person resident in India from an insurance company outside India
• i) Loans and overdrafts by a person resident in India to a person resident outside India
• j) Remittance outside India of capital assets of a person resident in India
• k) Sale and purchase of foreign exchange derivatives in India and abroad and commodity derivatives
abroad by a person resident in India.

39. PERMISSIBLE CAPITAL TRANSACTION IN FEMA
Investment in India by a person resident outside India, that is to say,
i) issue of security by a body corporate or an entity in India and investment therein by a
person resident outside India; and
ii) investment by way of contribution by a person resident outside India to the capital of a
firm or a proprietorship concern or an association of persons in India.
b) Acquisition and transfer of immovable property in India by a person resident outside
India.
c) Guarantee by a person resident outside India in favour of, or on behalf of, a person
resident in India.
d) Import and export of currency/currency notes into/from India by a person resident
outside India.
e) Deposits between a person resident in India and a person resident outside India.
f) Foreign currency accounts in India of a person resident outside India.
g) Remittance outside India of capital assets in India of a person resident outside India.

40. RESTRICTION IN FEMA
• a) no person shall undertake or sell or draw foreign exchange to or from an authorised
person for any capital account transaction,
• b) no person resident outside India shall make investment in India , in any form, in any
company or partnership firm or proprietary concern or any entity, whether incorporated
or not, which is engaged or proposes to engage -
• (i) in the business of chit fund, or
• (ii) as Nidhi Company , or
• (iii) in agricultural or plantation activities or
• (iv) in real estate business, or construction of farm houses or
• (v) in trading in Transferable Development Rights (TDRs).
• Explanation: For the purpose of this regulation, 'real estate business' shall not include
development of townships, construction of residential/commercial premises, roads or
bridges.

41. CASE STUDIES
• Mr. Atul an Indian National Desires to obtain
Foreign exchange for the Following purpose.
• A. Remittance of USD 10,000 for purchase of
goods purchased from a party situated in Nepal.
• B. USD 10,000 for remitting as commission to his
agent in USA for sale of commercial plot situated
near bangalore, consideration in respect of which
was received by Mr. Atul by way of foreign
currency inward remittance amount to USD
1,00,000.

42. CASE STUDY
• RBI issued certain directions to Dream
Constructions Ltd, an authorised person under
FEMA 1999 to file returns. The Company failed
to file the said Returns. Decide as to what
penal provisions are applicable against the
said authorised person under the said Act ?

43. CASE STUDY
• Advice whether the approval of central gov is
needed in the following cases under FEMA
1999?
• X wants to remit certain sum of money out of
lottery winnings.
• Payment of royalty in case it is 10% of local
sales and 20% of exports and the lump sum
payment of USD 3 million.

44. Key Features of Budget 2014-2015
• Deficit and Inflation
The fiscal deficit for 2013-14 contained at 4.6 percent .
Foreign exchange reserve to grow by USD 15 billion In this
Financial Year .
Rupee came under pressure following indications by US
Federal Reserve of reduction in asset purchases in May
2013. Government, RBI and SEBI undertook a number of
measures to facilitate capital inflows and stabilize the
foreign exchange markets. As a result among emerging
economy currencies rupee was least affected when actual
reduction took place in December 2013.

45. Key Features of Budget 2014-2015
• GDP Growth
Growth in the third and fourth quarter of the
current year is expected to be 5.2 percent and that
for the whole year has been estimated at 4.9
percent. The declining fiscal deficit, stable
Exchange Rate and reducing Current Account
Deficit, moderation in inflation, increasing exports
are reflection of a more stable economy today.

46. BUDGET ESTIMATE 2014-2015
• BUDGET ESTIMATE
The current financial year will end on a
satisfactory note with the fiscal deficit at 4.6
percent (below the red line of 4.8 percent) and
the revenue deficit at 3.3 percent.
The estimate of Plan Expenditure is `555,322
crore. Non Plan expenditure is estimated at
`12,07,892 crore.