Foreign Exchange Management Act (FEMA)

The FEMA full form is Foreign Exchange Management Act. The Act was passed in 1999 and came into force on 1 June 2000. It replaced the Foreign Exchange Regulation Act (FERA), which had stricter provisions. It was introduced after economic reforms increased India's participation in global trade and investment. The new framework focused on managing foreign exchange rather than imposing strict controls. It also helped create a more business-friendly environment for international transactions.

The FEMA Act 1999 sets out rules for foreign exchange transactions and international financial dealings.

• Facilitates foreign exchange transactions: The Act supports foreign exchange transactions related to trade, payments, and other permitted activities.

• Regulates current and capital account transactions: It provides separate rules for current account and capital account transactions.

• RBI oversight: The Reserve Bank of India issues regulations and monitors compliance under FEMA.

• Promotes foreign investment: The Act lays down guidelines for foreign direct investment and other overseas investments.

• Compliance and reporting requirements: Individuals and businesses must meet prescribed reporting and documentation requirements.

• Civil law framework: FEMA generally treats violations as civil offences, unlike the earlier FERA framework.

• Applicability to residents and overseas entities: The Act applies to Indian residents and certain overseas entities under their control.

The FEMA Act applies to various people, entities, and transactions involving foreign exchange. It governs foreign exchange dealings in India and certain activities conducted outside India.

• It applies to individuals and organisations that qualify as residents under FEMA.

• Indian companies must follow FEMA regulations while undertaking foreign exchange transactions.

• The Act covers overseas branches, offices, and agencies owned or controlled by Indian residents.

• It regulates transactions involving foreign currency, foreign securities, and cross-border payments.

• FEMA governs foreign investments, overseas assets, and permitted capital account transactions.

• Certain transactions involving non-residents are also covered under FEMA regulations.

FEMA prescribes monetary penalties for violations and promotes compliance with foreign exchange regulations.

• Any party violating the FEMA provisions or a rule, direction, regulation, notification or order under the act is subject to a penalty of thrice the amount involved in the violation or up to ₹2 lakhs.

• In case of repeated violations, the person must pay an additional penalty of up to ₹5,000 each day until the violation continues.

• The adjudicating authority may direct the party to turn over any property, currency, money or securities involved in the violation of the central government.

• If the party violating FEMA compliance fails to pay the penalty amount within 90 days of getting a notice, he/she is subject to civil imprisonment.

The FEMA Act is organised into various chapters and provisions that govern foreign exchange transactions, compliance requirements, and regulatory oversight.

• The head office of FEMA is known as the Enforcement Directorate. It is located in New Delhi and is headed by the Director.

• The five zonal offices of FEMA are located in Delhi, Kolkata, Mumbai, Jalandhar and Chennai. Each zonal office is headed by a Deputy Director.

• Each zone is further divided into seven sub-zonal offices headed by Assistant Directors and five field units headed by Chief Enforcement Officers.