Foreign Exchange Management Act (FEMA)

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ED Raids on Soros-Linked Entities for FEMA Violations.

About the Foreign Exchange Management Act (FEMA)

• The Foreign Exchange Management Act (FEMA), 1999, came into force on June 1, 2000, replacing the Foreign Exchange Regulation Act (FERA), 1973.
• The act was introduced in the backdrop of India’s economic liberalization to facilitate external trade and payments and ensure the orderly development of the foreign exchange market.

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Objectives of FEMA

• Regulation & Management of Foreign Exchange: FEMA governs all aspects of foreign exchange transactions in India, including:
  • Acquisition & Holding of foreign exchange.
  • Payment & Settlement of foreign exchange transactions.
  • Export & Import of currency.
• Liberalizing Foreign Exchange Policies: Unlike FERA, which was restrictive and criminalized violations, FEMA is more transparent and promotes globalization.
• Empowerment of RBI: The Reserve Bank of India (RBI) is the key authority under FEMA.
  • The RBI can frame rules, issue guidelines, and regulate foreign exchange transactions.
• Civil nature of offences: Violations under FEMA are civil offences (unlike FERA, where they were treated as criminal offences).
  • Penalties and fines can be imposed for non-compliance.

Applicability of FEMA

• FEMA applies to the whole of India, including:
  • Individuals, companies, and firms operating in India.
  • Indian agencies & offices abroad (owned or managed by Indian citizens).
• Entities & Transactions Covered Under FEMA:
  • Foreign Exchange & Foreign Securities.
  • Export & Import of goods and services.
  • Banking, Financial, and Insurance services.
  • Overseas companies owned by NRIs (where ownership is 60% or more).
  • Indian citizens residing within and outside India (NRIs).

Enforcement & Violations Under FEMA

• The Enforcement Directorate (ED) is the primary agency responsible for investigating violations.
• Violations can result in:
  • Monetary Penalties: Up to three times the amount involved or ₹2 lakh, whichever is higher.
  • Further Penalties: ₹5,000 per day for continued contraventions.
  • Seizure of Assets: In extreme cases, authorities may seize properties linked to FEMA violations.

Foreign Exchange Management Act FAQs

Q1. What is the Foreign Exchange Management Act (FEMA)?

Ans. FEMA is an Indian law enacted in 1999 to regulate foreign exchange transactions and facilitate external trade and payments while maintaining the foreign exchange market in India.

Q2. Why was FEMA introduced?

Ans. FEMA replaced the Foreign Exchange Regulation Act (FERA) to promote a more liberalized and transparent foreign exchange policy in line with economic reforms.

Q3. Who regulates FEMA in India?

Ans. The Reserve Bank of India (RBI) primarily regulates FEMA, while the Directorate of Enforcement (ED) is responsible for enforcement actions against violations.

Source: TH