AN OVERVIEW OF FEMA ACT

INTRODUCTION

The Foreign Exchange Management Act, 1999 ( FEMA) is an act of the parliament to amend and consolidate the law relating to foreign exchange trade and payment and for promoting development of foreign exchange market in India.

The Foreign Exchange Management Act (FEMA) was an act passed in the winter session of Parliament in 1999, which replaced Foreign Exchange Regulation Act. This act seeks to make offences related to foreign exchange civil offences. It extends to the whole of India.

The Foreign Exchange Regulation Act (FERA) of 1973 in India was replaced on June 2000 by the Foreign Exchange Management Act (FERA), which was passed in 1999. The FERA was passed in 1973 at a time when there was acute shortage of foreign exchange in the country.

OBJECTIVE OF FEMA ACT

The main objective of FEMA was to help facilitate external trade and payments in India. It was also meant to help orderly development and maintenance of the foreign exchange market in India. It defines the procedures, formalities, dealings of all foreign exchange transactions in India. This law’s main objective is to increase the flow of foreign exchange in India. Now , under this law , you can bring foreign currency in India without any legal barrier . According to section 3 of FEMA 2000 ,” only authorized person under the government terms can deal in foreign exchange in India .

  1. To simplify and ease the external trade and payments and reinforce the law relating to FEMA

2. To promote the systematized development and maintenance of a healthy foreign exchange market in India.

3. To remove disparity of payments.

4. To control and direct the employment business and investment of the non-residents.

5. To utilize the foreign exchange resources effectively for the country.

Features of FEMA

  1. FEMA does not apply to the Indian citizens who resides outside India. This criteria is checked by the number of days a person stays in India for more than 182 days in the preceding financial year.
  2. Central Government has the authority given by FEMA to impose restrictions on and supervise three things which are- payments made to any person outside India or receipts from them, forex and foreign security deals.
  3. It specified the areas for holding of forex that required specific permission of the Reserve Bank of India (RBI) or the government. 
  4. FEMA classified the transaction into a current and capital account.

PROVISIONS OF FEMA ACT

  1. Dealing in foreign exchange and Holding of foreign exchange, etc.
  2. Current account transactions.
  3. Capital account transactions.
  4. Export of goods and services.
  5. Realization and repatriation of foreign exchange

CONCLUSION

In order to conclude, we can say that the objective of FERA did not quite have the effect that was envisioned and the Indian economy continued to decline. To compound matters, the strict regulatory environment created under the ‘License Raj’ dampened the Indian economy further. To mitigate the downturn, then-Finance Minister Manmohan Singh unleashed economic liberalization in 1991 and as a result, the government had to make a series of concessions to FERA’s stipulations under the new rules. These concessions made FERA largely irrelevant under the new economic regime. Eventually, the government decided to move from “currency regulation” to “currency management”, and set up FEMA. And so FERA in India was replaced by FEMA.

REFERENCES

  1. WIKIPEDIA
  2. http://www.taxguru.com

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