Foreign exchange management act, 1999 (fema): basic understa

FEMA contains 7 Chapters divided into 49 sections of which 12 sections cover operational part and the rest 37 sections deal with contraventions, penalties, adjudication, appeals, enforcement directions, etc.  FEMA makes provisions for dealings in foreign exchanges. Broadly, all current account transactions are free. However, Central Government can impose reasonable  restrictions by issuing rules. The capital account transactions will be regulated by RBI/Central Government for which necessary circulars/notifications will have to be issued under FEMA.

All chapters of FEMA divided into 49 sections. Besides the FEMA, there are 5 Rules and 23 regulations under the Act which help in implementation of the Act are classified here:

Chapter I :      Preliminary  (Section 1 &2)

Chapter II :     Regulation and Managements of Foreign Exchange (Section 3 -9)

Chapter III :    Authorised Person (Section 10-12)

Chapter IV:     Contraventions and Penalties (Section 13-15)

Chapter V:      Adjudication and Appeal (Section 16-35)

Chapter VI:     Directorate of Enforcement (Section 36-38)

Chapter VII:   Miscellaneous (Section 39-49)

The Rules made by Central Government under section 46 of FEMA are:

1.         Foreign Exchange Management (Encashment of Draft, Cheque, Instruments and Payment of Interest) Rules, 2000

2.         Foreign Exchange Management (Authentication of Documents) Rules, 2000

3.         Foreign Exchange Management (Current Account Transaction) Rules, 2000

4.         Foreign Exchange Management (Adjudications Proceedings and Appeal) Rules, 2000

5.         Foreign Exchange Management (Compounding Proceedings) Rules, 2000

The Regulations made by Reserve Bank of India under section 47 of FEMA are:

1.         Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2000

2.         Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000

3.         Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000

4.         Foreign Exchange Management (Deposit) Regulations, 2000

5.         Foreign Exchange Management (Export and Import of Currency) Regulations, 2000

6.         Foreign Exchange Management (Guarantees) Regulations, 2000

7.         Foreign Exchange Management (Issue of Security in India by a Branch, Office or Agency of a Person Resident Outside India) Regulations, 2000

8.         Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000

9.         Foreign Exchange Management (Establishment in India of Branch or Office or Other Place of Business) Regulations, 2000

10.       Foreign Exchange Management (Export of Goods and Service) Regulations, 2000

11.       Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000

12.       Foreign Exchange Management (Insurance) Regulations, 2000

13.       Foreign Exchange Management (Investment in Firm or Proprietary Concern in India) Regulations, 2000

14.       Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000

15.       Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000

16.       Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2000

17.       Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Currency) Regulations, 2000

18.       Foreign Exchange Management (Remittance of Assets) Regulations, 2000

19.       Foreign Exchange Management (Transfer or Issue of Security by a Person resident Outside India) Regulations, 2000

20.       Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000

21.       Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004

22.       Foreign Exchange Management (Offshore Banking Unit) Regulations, 2002

23.       Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs) ) Regulations, 2003.

AUTHORITIES AND ENFORCEMENT MACHINARY

 FEMA in itself is not an independent and isolated law. The provisions of FEMA are spread at different place and so there are regulatory bodies. Reserve Bank of India makes Regulations for FEMA and the Rules are made by Central Government. Authorities governing the enforcement of FEMA are:

·         Foreign Exchange Department of Reserve Bank of India.

·         Directorate of Enforcement, Department of Revenue, Ministry of Finance.

·         Capital Market Division, Department of Economic Affairs, Ministry of Finance.

·         Foreign Trade Division, Department of Economic Affairs, Ministry of Finance.

Machinery responsible for various aspect of FEMA is:

1.         Enforcement Directorate: To investigate provisions of the Act, the Central Government, have established the Directorate of Enforcement with Directors and other officers as officers of the Enforcement.

2.         Adjudicating Authorities: The Adjudicating Authorities will issue a notice to the person who has contravened the provisions of the Foreign Exchange Management Act, Rules, Regulations, Notifications or any directions issued by the RBI.

3.         Special Director (Appeals): Any person aggrieved by an order made by the Adjudicating Authority, being an Assistant Director of Enforcement or a Deputy Director of Enforcement can prefer an appeal to the Special Director (Appeals.)

4.         Appellate Tribunal: Any person aggrieved by an order made by the adjudicating Authority, or the Special Director (Appeals) can prefer an appeal to the Appellate Tribunal.

FEMA envisages that RBI shall have controlling role in management of foreign exchange. Since RBI cannot directly handle foreign exchange transactions, it authorizes “Authorised Persons” to deal in foreign exchange as per direction issued by RBI.RBI is empowered to issue direction to such “Authorised Persons”. These Directions are issued through AP(DIR) Circulars. (AP stand for Authorised Person and DIR stand for Directions) 

Thank you very much for the detailed information about FEMA 1999.

Would you please tell me which kind of permission (general/special) is required from RBI for, lease of immovable property situated abroad, by a company incorporated in India ?

Waiting for your reply...

Hi Veeral....

For more details go to the following regulation:

Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2000

Good Article.

I already went through it few hours ago before replying to you, but it is not clear about kind of permission required for the above said lease.  If you become aware of any Notifications regarding the same then please make me aware of it. Anyway thanks for your response. 

Thanks for the detailed info **AM**. This is very good post for students.

Keep posting

great piece of info sir

keep sharin and posting

cheers

thanks for giving us very useful information. I would like to know can i invest in shares of the abroad companies, if so

1)what is the limit?

2) whether any permission from RBI?

3) what is the limit for with permission & without permission?

4) can i invest in currency trading ?

Really nice n useful info ..

Is this applicable to J & K as well

Yes Renu, It extends to the whole of India.

Hi Siddu

Read Master Circular on Overseas Direct Investment (ODI) issued by RBI time to time and every year 1 July.

Regards