Foreign Exchange Management Act (FEMA) For India: An Overview

The Foreign Exchange Management Act (FEMA) was introduced by the Indian Government in 1999, replacing the previous Foreign Exchange Regulation Act (FERA) of 1973. FEMA was designed to boost external payments and foreign trades. FEMA is a civil law against FERA which was a draconian police law.

In essence, FEMA was a modernization of the Indian economy and created to liberalize and privatize the Indian market.

The main aim of introducing FEMA was to liberalize the Indian economy by encouraging foreign trade and payments. It helped to regulate the Indian forex market.

According to FEMA, the balance of payment is a record of transactions in products, services, or properties between citizens of two separate countries.

FEMA can be classified into two categories:

Capital Account Transactions — all capital transactions and the inflow and outflow of money to and from India.

Current Account Transactions — all trade of merchandise as an indicator of an economy’s status.

Thus, creating the structure and measures for all foreign exchange transactions in India.

FEMA applies to the whole of India. It also applies to the agencies and offices located outside India that are managed or owned by an Indian citizen. The headquarters is situated in New Delhi and is known as the Enforcement Directorate.

More specifically, FEMA applies to:

  • Indian foreign exchange
  • Indian foreign security
  • Banking, financial, and insurance services
  • Exporting of any product and/or services from India to a foreign country
  • Importing of any product and/or services from outside India
  • Securities as defined under the Public Debt Act of 1994
  • Buying, Selling,
  • Any Indian Entity owned by a person resident outside India
  • Any citizen of India, residing in India or in a foreign country
  • And Exchanging of any kind of product/service
  • Any overseas company owned by a non-resident Indian (NRI)

Current Account transactions listed by FEMA have been classified into three areas:

  • Transactions prohibited by FEMA
  • A transaction that requires Central Government’s permission
  • A transaction that requires the Reserve Bank of India’s (RBI’s) permission

The Prohibitions Under FEMA :

  • Sending money which is the result of winning the lottery.
  • Sending money which is the result of winning horse racing, cricket games, etc.
  • Sending money to buy a lottery ticket, football betting, sweepstakes, banned publications, etc.

The payment of commission on exports towards equity investment of Indian companies in joint ventures or wholly-owned subsidiaries abroad. The sending of a dividend by any company. This is only applicable if dividend balancing is applicable. The payment of commission on exports under Rupees State Credit Routes (except commission up to 10 percent of the invoice value of export of tea and tobacco).

Any payment regarding “Call-back Services” of telephones.

Any travel to Bhutan and/or Nepal.

Sending interest income on funds held in Non-resident Special Rupees (NRSR) scheme account.

A transaction of any kind with a resident of Bhutan or Nepal.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

If you are interested in participating in the same, do let me know.

Do follow me on FacebookTwitter  Youtube and Instagram.

The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.

If you would also like to contribute to my website, then do share your articles or poems at

In the year 2021, we wrote about 1000 Inspirational Women In India, in the year 2022, we would be featuring 5000 Start Up Stories.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.