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FOREIGN EXCHANGE MANAGEMENT

FEMA (FOREIGN EXCHANGE MANAGEMENT ACT – SOME RELEVANT ASPECTS

What is the objective of FEMA?

The main objective of FEMA is to facilitate external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. FEMA deals with provisions relating to procedures, formalities, dealings, etc. of foreign exchange transactions in India. The transactions relating to foreign exchange have been classified under FEMA into two main categories, viz., (1) Current Account Transaction, (2) Capital Account Transaction.

What is capital account transaction?

As defined in Section 2(e) of the FEMA, "capital account transaction" means transactions, which alter the assets or liabilities, including contingent liabilities outside India, of persons resident in India or assets or liabilities, in India, of persons resident outside India, and includes transactions referred to in section 6(3)? of the FEMA. Transactions covered in section 6(3) of FEMA are as follows: -

Transfer or issue of any foreign security by a person resident in India.
Transfer or issue of any security by a person resident outside India.
Transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India.
Any borrowing or lending in foreign exchange in whatever form by whatever name called.
Any borrowing or lending in rupees in wh?atever form or whatever name called between a person resident in India and a person resident outside India.
Deposits between persons resident in India and persons resident outside India.
Export, import or holding of currency or currency notes.
Transfer of immovable property outside India, other than a lease not exceeding five years by a person resident in India.
Acquisition or transfer of immovable property in India, other than lease not exceeding five years by a person resident outside India.
Giving of a guarantee or surety in respect of any debt, obligation or other liability incurred –
by a person resident in India and owed to a person resident outside India or
by a person resident outside India. ?

Note : Section 6(3) has been omitted by Finance Act, 2015 w.e.f. a date yet to be notified.

What is current account transaction?

As defined in Section 2(j)? of the FEMA, "current account transaction" means a transaction other than a capital account transaction and without prejudice to the generality of the foregoing such transaction includes:–

Payments due in connection with foreign trade, other current business, services and short-term banking and credit facilities in the ordinary course of business,
Payments due as interest on loans and as net income from investments,
Remittances for living expenses of parents, spouse and children residing abroad, and
Expenses in connection with foreign travel, education and medical care of parents, spouse and children.
In terms of section 5 of the FEMA, Any person may sell or draw foreign exchange to or from an authorized person if such sale or drawl is a current account transaction provided that Central Government may, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions for current account transactions as may be prescribed. .

What are the major provisions covered in FEMA, 1999?

The major provisions of FEMA, 1999 relate to following matters:

Dealing in foreign exchange, etc.
Holding of foreign exchange, etc.
Current account transactions
Capital account transactions
Export of goods and services
Realization and repatriation of foreign exchange
Exemption from realization and repatriation in certain cases.
Provisions relating to authorised persons. i.e. authorised by RBI to deal with foreign exchange or in foreign securities
Power of RBI to inspect authorized person
Contravention and penalties
Adjudication and appeal
Directorate of enforcement
Miscellaneous provisions