1. Objectives of FEMA
FEMA stands for ‘Foreign Exchange Management Act, 1999’. In this part you can gain knowledge about important provisions of FEMA 1999.
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.
2. Meaning of capital account transaction
As defined in Section 2(e) of the FEMA, "capital account transaction" means a transaction which alters 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 sub-section (3) of section 6.
Subject to the provisions as laid down by RBI in consultation with Central Government, any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction.
The Reserve Bank may, in consultation with the Central Government, specify—
(a) any class or classes of capital account transactions, involving debt instruments / not involving debt instruments, which are permissible;
(b) the limit up to which foreign exchange shall be admissible for such transactions;
(c) any conditions which may be placed on such transactions:
Provided that the Reserve Bank or the Central Government shall not impose any restrictions on the drawal of foreign exchange for payment due on account of amortisation of loans or for depreciation of direct investments in the ordinary course of business
A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India
A person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India
Without prejudice to the provisions of this section, the Reserve Bank may, by regulation, prohibit, restrict, or regulate establishment in India of a branch, office or other place of business by a person resident outside India, for carrying on any activity relating to such branch, office or other place of business
3. Major provisions covered in FEMA, 1999
The major provisions of FEMA, 1999 relate to following matters :
1. Dealing in foreign exchange, etc.
2. Holding of foreign exchange, etc.
3. Current account transactions
4. Capital account transactions
5. Export of goods and services
6. Realization and repatriation of foreign exchange
7. Exemption from realization and repatriation in certain cases.
8. Provisions relating to authorised persons. i.e. authorised by RBI to deal with foreign exchange or in foreign securities
9. Power of RBI to inspect authorized person
10. Contravention and penalties
11. Adjudication and appeal
12. Directorate of enforcement
13. Miscellaneous provisions