Foreign Exchange Management Act, 1999

FEMA, 1999

Came into effect from 1st June 2000 Objective

Facilitating external trade and payments Promoting orderly development and maintenance

of foreign exchange market in India Application of the Act

Whole of India Branches and offices owned or controlled by a

person resident of India

Definitions Authorized Person

Authorized dealer Money changer, Offshore banking Unit Any other person authorized to deal in foreign

exchange and foreign securities Capital Account Transaction : A transaction

which alters assets or liabilities Currency : Currency notes, Postal notes,

Postal orders, Money orders, Cheques, Traveler's Cheques, Letter of Credit, Bill of Exchange, Promissory notes, Credit Cards

Definitions Current Account Transaction

Payments due in connection with foreign trade Short term banking & Credit facilities Interest on Loans Remittances for living expenses of parents,

spouse, children residing abroad Expenses like foreign travel, education & medical

care Export : Taking any goods out of India to a

place outside India; any provision of services to any person outside India

Definitions Foreign Exchange :

Deposits, credits & balances payable in foreign currency Drafts, traveler’s cheques, letters of credit drawn in India

(foreign) payable in foreign (India) Foreign Security :

Shares, stocks, bonds, debentures expressed in foreign currency

Cos. Maintain 2 share registers (one in India & other outside [foreign security])

Person : an Individual, HUF, Company, Firm, Association of persons, Office owned or controlled by such person, etc.

Definitions Person Resident in India

Person residing for more than 182 days in preceding financial year

Person or body corporate registered or incorporated in India

Office, branch or agency in India controlled by a non-resident

Office, branch or agency outside India controlled by a resident

Repatriate to India : bringing into India realized foreign exchange and selling to an authorized person in exchange of rupees or holding it in an account with authorized person (extent notified by RBI)

Definition

Transfer : Sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien

Regulation & Management of Foreign Exchange

Dealings in foreign exchange (Sec 3) Deal or transfer any foreign exchange only to an

authorized person Current Account Transactions

May sell or draw foreign exchange to or from an authorized person

Capital Account Transactions Through an authorized person RBI specifies limits for such transactions RBI has right to prohibit, regulate or restrict

transactions

Regulation & Management of Foreign Exchange Holding

By a Resident : may hold, own, transfer or invest in foreign currency or security or any immovable property if acquired, held or owned when he was outside or inherited from a non-resident

By a Non-Resident : may hold, own, transfer or invest in Indian currency or security or any immovable property if acquired, held or owned when he was resident in India or inherited from a resident

Regulation & Management of Foreign Exchange Export of Goods and Services

Furnish Declaration (Goods) True and correct material particulars to RBI or such

other authority Amount representing full export value (if it is not known

then expectation on sale in market outside India) Full Export Value

Whole of price agreed between parties Exporter of services to furnish declaration to

Reserve Bank or such other authority

Regulation & Management of Foreign Exchange Realization and Repatriation of foreign

exchange Any amount is due or has accrued that person

shall take all reasonable steps to realize or repatriate to India

Period and Manner is specified by RBI

Authorized Person Granting of authorization on application

Authorization is given in writing Subject to conditions

Revocation May be done by RBI Reason : Public Interest or Failure to comply with

conditions Declaration

By the person making transaction to check if any condition is contravened if so Authorized person refuse in writing or report it to RBI

To see if that person uses money for other purpose than given in declaration, then it is contravention

RBI Powers

To Issue Directions To Authorized person (for transactions) To Authorized person (on furnishing information)

Inspect Authorized Person Verify correctness, obtain information, secure

compliance with provisions of Act Production of Books, Accounts and Documents

Confiscation

RBI Powers

Penalty If amount is quantifiable maximum limit is thrice

that sum; If not limit is Rs. 2,00,000. If contravention continues each day Rs. 5000

Civil Imprisonment If full payment of penalty not made within 90 days If amount more than 1 crore => max. 3 years; less

than 1 crore => max. 6 months

RBI Powers

Procedure Notice upon defaulter Opportunity for showing cause Warrant for Arrest Order on conclusion of inquiry Release of defaulter Execution of detention order

Adjudication & Appeal Adjudicating Authority

Central Govt. may appoint by order published in Official Gazette

Complaint in writing by an officer authorized by Central Govt.

Appeal to Special Director (Appeals) Appointment made by Central Govt. Appeal within 45 days of order Opportunity to be heard is given Copies of order sent to parties & concerned

Adjudicating Authority

Adjudication & Appeal

Appellate Tribunal Appeals against Adjudicating Authorities &

Special Director (Appeals) Deposit amount of penalty and then appeal Appeal to be filed within 45 days Within 180 days dispose appeal

Appeal to High Court

Officers of Enforcement

Appointed by Central Government Power of search and seizure