What is Foreign Exchange Management Act (FEMA)?

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What is Foreign Exchange Management Act (FEMA)? Blog Image


The Supreme Court has directed the Central Government and Reserve Bank of India (RBI) to respond to whether Overseas Citizens of India (OCI) can be exempted from the Foreign Exchange Management Act’s

About Foreign Exchange Management Act (FEMA):

  • FEMA is an enactment that deals primarily with the provisions relating to cross-border trade and payments thereof.
  • It defines the procedures, formalities, and dealings of all foreign exchange transactions in India. 
  • It was introduced in 1999 as a replacement for the earlier Foreign Exchange Regulation Act (FERA).
  • FEMA's head office is known as Enforcement Directorate and is situated in Delhi.
  • Primary objective: To help facilitate external trade and payments in India.
  • Other objectives:
    1. To help orderly development and maintenance of the foreign exchange market in India.
    2. To facilitate transactions involving a foreign exchange or foreign security and payments from outside the country to India only through an authorized person.
    3. To encourage dealings in foreign exchange under the current account through an authorized person.
    4. To authorize the Reserve Bank of India to subject capital account transactions to a number of restrictions.
  • Applicability:
    1. It is applicable to all parts of India.
    2. It is also equally applicable to the offices and agencies located outside India but managed or owned by an Indian Citizen.
    3. FEMA is applicable to the following entities and transactions
      • Any citizen of India residing in the country or outside (NRI);
      • Any overseas company that is owned 60% or more by an NRI (Non-Resident Indian);
      • Any Associate Branches or subsidiaries, outside India, of companies or bodies corporate, registered or incorporated in India;
      • Exports of any goods and services from India;
      • Imports of goods and services to India;
      • Banking, financial, and insurance services provided outside India;
      • Cross-border sale, purchase, and exchange of any kind (i.e. Transfer).

Who are Overseas Citizens of India (OCI)?

  • OCI Scheme was introduced by amending the Citizenship Act 1955 in August 2005.
  • The Scheme provides for registration as OCI of all Persons of Indian Origin (PIOs) who were citizens of India on 26th January 1950 or thereafter or were eligible to become citizens of India on 26th January 1950, except those who were or had been a citizen of Pakistan, Bangladesh or such other country as the Central Government may, by notification in the Official Gazette, specify.
  • OCI is entitled to
    1. Multiple entry, multipurpose, life-long visa for visiting India;
    2. exempted from registration with Foreign Regional Registration Officer or Foreign Registration Officer for any length of stay in India;
    3. general 'parity with Non-Resident Indians in respect of all facilities available to them in economic, financial, and educational fields except in matters relating to the acquisition of agricultural or plantation properties.


Q1) Which all things  OCI cardholders are not entitled to do?

The OCI is not allowed to vote, to serve in the Legislative Assembly, Legislative Council, or Parliament, to hold constitutional positions such as President, Vice President, Judge of the Supreme Court or High Court, or to work for the government in any capacity.

Source: Can OCI Holders Be Exempted from FEMA Norms? Supreme Court Seeks Centre’s Stand