Foreign Exchange Management Act (FEMA), 1999

Foreign Exchange Management Act (FEMA), 1999
INTRODUCTION
• Several amendments were made in FEMA as part of on-going process of economic liberalisation relating to foreign investments and foreign trade for closer interaction with the world economy.
• Central Govt enacted the new FEMA in 1999 in consultation with RBI.
• The main reason behind this law is the substantial development in our foreign exchange reserves, growth in foreign trade, rationalisation of tariffs, current account convertibility, liberalisation of Indian Investments abroad, and increased access to external commercial borrowings by Indian corporates and participation of foreign institutional investors in our stock markets.
• FEMA is dynamic law relating to Foreign exchange with the objective of facilitating external trade and payments and for promoting orderly development and maintenance of foreign exchange market in India.
• FEMA came in force in June, 2000.
Objective of FEMA
• To promote an orderly maintenance of Foreign affairs market in India.
• To regulate foreign payments within the existing economic structure.
• To efficiently regulate foreign capital in India.
• To facilitate external trade and payments
• To Remove imbalance of payment
• To regulate investments by non-residents
• To regulate business of non-residents.
Sec. 3. Dealing in foreign exchange, etc.
This sec does not distinguish between current or capital account transactions, Both are covered.
Sec 3 of FEMA lays down the law relating to dealings in FE and Foreign securities and payments to and receipts from any person outside India. It makes the permission of the RBI mandatory in following cases.
It further provides that – No Person shall
(a) Deal in or transfer any foreign exchange or foreign security to any person not being an authorised person;
(b) Make any payment to or for the credit of any person resident outside India in any manner;
(c) Receive otherwise through an authorised person, any payment by order or on behalf of any person resident outside India in any manner.
Sec. 5 Current account transactions
CAT means a transaction which alters the assets and liabilities, including contingent liabilities outside India of persons resident in India or assets or liabilities in India of persons resident outside India including permissible class of capital account transactions, and also admissible limit of capital account transaction.
FEMA Structure dealing with Capital Account Transaction
Sec. 6 (1) Capital account transactions.—(1) Subject to the provisions of sub-section (2), any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction.
Sec. 6 (2) (a) The Reserve Bank may, in consultation with the Central Govt, specify any class or classes of capital account transactions, involving debt instruments which are permissible, the limit up to which foreign exchange shall be admissible for such transactions, and any conditions which may be placed (Introduced by Finance Act 2015).
Sec. 6(2A) The Central Govt may, in consultation with the Reserve Bank, any class or classes of capital account transactions, not involving debt instruments, which are permissible, the limit up to which foreign exchange shall be admissible for such transactions; and any conditions which may be placed on such transactions.
Sec. 6 (4) 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.
Sec. 6 (5) 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.
WRITTEN BY
RAGHAV JAGGA

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