Popularly known as FEMA – the Act is the Bible of all Forex transactions that happen in the country – it is the Holy Rule Book of foreign exchange transactions and of the administration part too.
It is important here to know a little history of FEMA:
Foreign Exchange Regulation Act, 1974 or FERA – was introduced in the year 1974 with the prime objective of ‘conserving/ preserving’ the foreign exchange; which means the forex transactions were severely controlled to avoid misuse – as it was considered a scarce resource.
Also – the mean part – if an offence was committed under FERA it was considered a ‘criminal offence’!
With time, economic liberalization, globalization, better forex transaction infrastructure and opening of the world market, need was felt to do away with FERA as its provision resulted in constricting the growth of forex and ultimately the economy at large.
It is important here to know a little history of FEMA:
FEMA actually has a predecessor – a stricter, meaner and a
draconian predecessor, popularly called the FERA.
Foreign Exchange Regulation Act, 1974 or FERA – was introduced in the year 1974 with the prime objective of ‘conserving/ preserving’ the foreign exchange; which means the forex transactions were severely controlled to avoid misuse – as it was considered a scarce resource.
Also – the mean part – if an offence was committed under FERA it was considered a ‘criminal offence’!
With time, economic liberalization, globalization, better forex transaction infrastructure and opening of the world market, need was felt to do away with FERA as its provision resulted in constricting the growth of forex and ultimately the economy at large.
Thus at the turn of the millennium and India’s coming of age
FEMA was introduced in 2000, on 1st June, with the Foreign Exchange
Management Act, 1999.
FEMA stands for:
- Facilitating foreign exchange transaction – exports, imports, and payments thereof;
- Promoting development of forex;
- Maintenance of a healthy forex market in the country.
Salient Features of FEMA:
- FEMA is applicable to
Individuals (you and me!), HUFs, companies, firms and AOPs and BOIs.
- FEMA is applicable to a
person ‘Resident’ in
India – as opposed to FERA’s citizenship criteria – which means if the
status of any person, who is a citizen of India or not, is ‘Resident’ he
or she shall be covered under the FEMA for any forex transaction as per
the given provisions.
- Under FEMA – a person, who
has been residing in India for more
than 182 days, will be considered a ‘Resident’!
- ‘Currency’ under FEMA
includes debit cards, ATM cards
and credit cards too!
- FEMA treats offences
committed under the Act as civil
offences.
- Only ‘Authorized Persons’ can deal in foreign exchange – all
our transactions will be routed through them.
Authorized Persons are nothing but authorized dealers – authorized by the RBI; and they have to follow RBI guidelines very strictly to keep their licenses.
- We are permitted by RBI to
buy forex from Post Offices
in the form of postal/ money orders! Easy availability in the time of
emergency requirements!
- Any monetary transaction
with Nepal or Bhutan –
in rupees – these two countires recognize and accept ‘Rupees’ – will not fall under FEMA!
- ‘Capital Account’
transactions are those transactions which alter the assets and liabilities
of a person – buying/ selling of foreign securities, borrowing/ lending of
loans, purchase/ sale of immovable properties etc – and all these being
across national boundaries!
NO restrictions on forex transaction for repayment of loans – important to know!
- ‘Current Account’
transactions are those other than capital and are mostly personal in
nature like remittances for living expenses for studies/ medical treatment
abroad, foreign travel, foreign business etc.
Current Account transactions are categorized into three explicitly drawn out categories which spell out the transactions allowed and not allowed -
(i) those which are prohibited by FEMA,
(ii) those which require Central Government’s permission,
(iii) and those which require RBI’s permission.
(I’m listing the absolutely important points to remember here.)
- Prohibited Current Account transactions (V.Imp!!!!) – you can’t
draw foreign exchange for:-
1. Forex
can’t be drawn for making payment to any person in Nepal or Bhutan! Use Rupees!
2. Remitting
lottery winnings outside India.
Remitting any income from winning in any races/ horse races/ hobbies etc.
Remitting any income from winning in any races/ horse races/ hobbies etc.
3. You
can’t remit any money outside India for the purchase of lottery tickets, or
banned magazines, sweepstakes, betting etc.
4. You
can’t draw forex for making payments on any ‘Call Back Services’ on telephone
calls – call back is when you call and then immediately get a call back being
routed through the telephone services of a company where charges are lower.
- Approval of Central Government needed for:
1. Drawal
of forex for taking cultural tours outside India.
2. If
state government or its undertakings advertise in foreign print media (for any
purpose other than promotion of tourism, investments – exceeding USD 10,000) –
then CG approval needed!
3. Remittance
of prize money, sponsorship of sporting activities abroad by persons other than
sporting bodies – if the amount being remitted exceeds USD 1,00,000.
4. Remittance
for hiring of transponders by ISPs and TV channels.
- Approval of RBI needed for:-
1. For
infrastructure projects – if the consultancy is taken from outside India and
the remittance for such exceeds USD 1,00,00,000 per project.
2. For
any other projects – if the consultancy is taken from outside India and the
remittance for such exceeds USD 10,00,000.
3. Approval
of RBI needed to release forex in excess of USD 10,000 in one financial year.
4. Approval
of RBI needed for gift/ donation remittances in excess of USD 5,000 in one
financial year, per remitter or donor (the receiver of the gift remittance)
5. Exceeding
USD 1,00,000 for persons going abroad for employment/ emigration.
6. Exceeding
USD 25,000 for business travel, attending conference etc.
7. Medical
treatment abroad – based on doctor’s estimate of expenses – if doctor’s
estimate exceeds USD 1,00,000 – then no approval is required.
- The limit under Liberalised Remittance Scheme,
has be increase to USD 2,50,000 per financial year for permissible current
or capital account transaction or a combination of both, whereby all
resident individuals, including minors, are allowed to freely remit to
that extent – the increase came in 2015.
This 11th point has been asked in a couple of interviews irrespective of candidate’s educational background - so keep this new limit in mind for upcoming exams and/ or interviews!!
That is all for today folks – hope you have a good start to the week and of the new financial year!
