FEMA Rules/ Policies

The Foreign Exchange Management Act, 1999 (FEMA) came into force
with effect from June 1, 2000. With the introduction of the new
Act in place of FERA, certain structural changes were brought
in. The Act consolidates and amends the law relating to foreign
exchange to facilitate external trade and payments, and to promote
the orderly development and maintenance of foreign exchange in
India.

From the NRI perspective, FEMA broadly covers all matters related
to foreign exchange, investment avenues for NRIs such as immovable
property, bank deposits, government bonds, investment in shares,
units and other securities, and foreign direct investment in India.

FEMA vests with the Reserve Bank of India, the sole authority
to grant general or special permission for all foreign exchange
related activities mentioned above.

Section 2 – The Act here provides clarity on
several definitions and terms used in the context of foreign exchange.
Starting with the identification of the Non-resident Indian and
Persons of Indian origin, it defines "foreign exchange"
and "foreign security" in sections 2(n) and 2(o) respectively
of the Act. It describes at length the foreign exchange facilities
and where one can buy foreign exchange in India. FEMA defines
an authorised dealer, and addresses the permissible exchange allowed
for a business trip, for studies and medical treatment abroad,
forex for foreign travel, the use of an international credit card,
and remittance facility

Section 3 prohibits dealings in foreign exchange
except through an authorised person. Similarly, without the prior
approval of the RBI, no person can make any payment to any person
resident outside India in any manner other than that prescribed
by it. The Act restricts non-authorised persons from entering
into any financial transaction in India as consideration for or
in association with acquisition or creation or transfer of a right
to acquire any asset outside India.

Section 4 restrains any person resident in India
from acquiring, holding, owning, possessing or transferring any
foreign exchange, foreign security or any immovable property situated
outside India except as specifically provided in the Act.

Section 6 deals with capital account transactions.
This section allows a person to draw or sell foreign exchange
from or to an authorised person for a capital account transaction.
RBI in consultation with the Central Government has issued various
regulations on capital account transactions in terms of sub-sect
ion (2) and (3) of section 6.

Section 7 covers the export of goods and services.
All exporters are required to furnish to the RBI or any other
authority, a declaration regarding full export value.

Section 8 puts the responsibility of repatriation
on the persons resident in India who have any amount of foreign
exchange due or accrued in their favour to get the same realised
and repatriated to India within the specific period and in the
manner specified by the RBI.

The duties and liabilities of the Authorised Dealers have been
dealt with in Sections 10, 11 and 12, while
Sections 13 to 15 cover penalties and enforcement of
the orders of the Adjudicating Authority as well as the power
to compound contraventions under the Act.

Sections 36 and 37 deal with the establishment
of an Enforcement Directorate, and empowers it to investigate
the violation of any provisions of the Act, rules, regulations,
notifications, directions or order issued under this Act.