FEMA Full Form

What is meant by Foreign Exchange Management Act?

The Foreign Exchange Management Act, full form for FEMA, is an official body organized by the Reserve Bank of India in 1999 to consolidate and amend the laws regulating foreign exchange in the country. On 29 December 1999, FEMA was enacted. This particular act officially came into force by an act of Parliament on 1 June 2000.

The FEMA is a set of regulations empowering the Reserve Bank of India to pass regulations and the country’s government to pass rules related to the foreign exchange. Foreign Exchange Management Act replaced an act called FERA, 1973 (Foreign Exchange Regulation Act).

Objectives of the Foreign Exchange Management Act

• To reinforce and amend the laws related to foreign exchange in the country
• Facilitating simple and easy external trade and payments
• To promote the orderly development and maintenance of the healthy foreign exchange market in the country
• To define formalities and procedures for all forex transactions in the country
• To eliminate the disparity of payments
• To utilize the foreign exchange resources optimally for the benefit of the nation
• Furthermore, to control and direct the employment business and investment carried out by the non-residents of the country

Characteristics of the Foreign Exchange Management Act?

• It is to be noted that Foreign Exchange Management Act does not apply to Indian residents residing in a foreign country. It can be checked by noting the number of days an individual stayed in India. A person residing for more than 182 days in the preceding financial year is considered eligible under FEMA Act
• FEMA empowers the country’s central government to impose restrictions and supervise three things. First, payment is made to the individual living in a country other than India. Second, the payment received from the individual living in a country other than India. Third, the financial transactions concerning foreign exchange or securities
• Under FEMA, the government of the country is capable of restricting the authorized individual from carrying out the foreign exchange transactions within the current account to protect the general interest of the public
• Under FEMA, the Reserve bank of India is capable of restricting the authorized individual from carrying out the foreign exchange transactions within the capital account
• According to FEMA, the Indian citizen residing in the country is authorized to conduct foreign security or foreign exchange transactions or hold or own the immovable property in the foreign nation if the particular property was acquired by them when living in the foreign country

Structure of the Foreign Exchange Management Act

• The Head office of the Foreign Exchange Management Act, also popularly called the enforcement Directorate, is located in New Delhi and is headed by the director
• The Deputy Director heads five zonal offices. These offices are located in Delhi, Chennai, Mumbai, Jalandhar, and Kolkata 
• Every five zonal offices are further subdivided into seven sub-zonal offices, and Assistant Directors head these

Current account transactions under FEMA

Under the FEMA, Foreign Exchange Management (Current Account Transaction) Rules of 2000 was issued by the central government of the country to restrict the authorized individual to carry forex transactions under their current account. Under the FEMA rules and regulations, it is mandatory for the prohibited, not prohibited, and permitted current account transactions to obtain the approval of the central government and RBI.

FEMA recognized the growing international presence of the Indian residents and the increasing contribution of the Non-Resident Indians in the country’s economy. Therefore, under the LSR limit scheme of FEMA, an individual can send money up to the limit of US $250,000 to India during one financial year. 

Capital account transactions under the FEMA

Under the FEMA, Foreign Exchange Management (Permissible Capital Account Transaction) Regulations of 2000 was issued by the central government of the country to restrict the authorized individual to carry forex transactions under their capital account. 

The regulations prohibited the individual residing in the foreign country from investing in the Indian companies involved in chit funds, agricultural and plantation activities, construction of farmhouses, real estate, etc.

The Indian residents were allowed to carry out the transactions, including investments in the foreign securities, foreign currency loans raised in and out of the country, transfer of immovable property outside the country, export and import of currency.

Conclusion

The Foreign Exchange Management Act regulates the transactions related to the foreign exchange and foreign securities in the country. However, FEMA is more flexible than FERA, and thus, its enactment was considered the need of the hour. Therefore, this article acts as the ultimate guide to the Foreign Exchange Management Act.