Foreign Exchange Management Act or FEMA, ruled out by the Reserve Bang of India, is a Financial Act that provides guidelines to the traders for the free flow of foreign exchange in India. Constituted out of the emerging frame work of World Trade Organization (WTO), FEMA brings out managements regimes for facilitating a consistent flow for foreign exchange. The ACT has come into implementation from 1st June 2000 onwards.
Initially, the act was known as FERA or Foreign Exchange Regulation Act, which was incompatible with the pro-liberalization policies of the Government. Unlike other laws of the country, which states that everything is permitted unless specifically prohibited, FERA had different norms. FERA supported the notion that nothing was permitted unless specifically permitted. Therefore, it was felt by authorities as well as commoners that the tenor and tone of FERA Act was very drastic. And as a consequence it was influencing the development of foreign trade. Even a very minor offence was punishable to imprisonment under this ACT. FERA advocates the fact that a person was presumed guilty unless he proved himself innocent whereas under other laws, a person is presumed innocent unless he is proven guilty.
Following are some of the highlights of the FEMA ACT:
- Unauthorized people (specifically those who do not have trade licenses or have ever involved in illegal acts) should not engage in foreign exchange dealings.
- It is mandatory for the Indian Traders dealing with export to get inward remittance from abroad before they receive any Forex payment. Any person receiving foreign currency without a remittance slip shall be deemed to have received they payment from a unauthorized person.
- Seven types of specific current account transactions are totally prohibited. This literally means that no money transaction should ever take place under the specified 7 accounts. The banned accounts include transaction relating to lotteries, football pools, banned magazines and a few others.
- The Residents of India (ROI) have the complete freedom / right to hold or own or transfer any foreign security or immovable property situated outside India. Similarly those residing outside India who inherits such security or immovable property from an ROI are permitted to do the same.
- Holding of shares, securities and properties acquired by ROI is legal while he/she was a Resident or inherited such properties from a Resident.
- One could draw exchange and use it for some other purpose, other than what the actual purpose was, if the activity / purpose he/she is about to involve is permitted.
- The credit limits for certain factors have been significantly increased. For example – Indian Residents going abroad for business purpose or for participating in conferences seminars can get up to USD 25,000 per trip irrespective of the period of stay. They do not need to seek RBI’s permission to avail the specified amount worth FOREX. Also, the basic travel quota has been increased from the existing USD 3,000 to USD 5,000 per calendar year.
To know more about the FEMA ACT and the latest notification issued by the RBI, you can refer to Infodrive India. It is a popular online import export database that contains all the information on FEMA ACT.