Foreign Exchange Management Act, 1999 (FEMA)
An Act to consolidate and amend the law relating to foreign exchange with the objective of
facilitating external trade and payments and for promoting orderly development and
maintenance of foreign exchange market in India.
The Act aims to regulate and manage foreign exchange transactions through the RBI.
As per the Act, except with the general or special permission of the Reserve Bank, no
person can:
a. Deal in or transfer any foreign exchange or foreign security to any person who is not
authorized.
b. Make any payment to or for the credit of any person residing outside India in any
manner.
c. Receive otherwise through an authorised person, any payment by order or on behalf
of any person residing outside India in any manner.
d. Enter 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 by any person.
The Act maintains that no person residing in India can acquire, hold, own, possess or transfer any foreign exchange, foreign security or immovable property situated outside India, except with the general or special permission of the Reserve Bank.
Other salient features of the Act are:
Current Account Transactions
Any person may sell or draw foreign exchange to or from an authorised person, if such sale or withdrawl is a current account transaction.
Provided that the Central Government may, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions, for current account transactions as may be prescribed.
Capital Account Transactions
Any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction. The Reserve Bank may, in consultation with the Central Government, specify:
a. Any class or classes of capital account transactions which are permissible
b. The limit upto which foreign exchange shall be admissible for such transactions; provided that the Reserve Bank shall not impose any restriction on the withdrawal of foreign exchange for payments due on account of amortisation of loans or for depreciation of direct investments, in the ordinary course of business.
Powers of the RBI
The Reserve Bank can, by regulation prohibit, restrict or regulate the following:
a. Transfer or issue of foreign security by a person resident in India.
b. Transfer or issue of any security by a person resident outside India.
c. Transfer or issue of any security or foreign security by any branch, office or agency in India, of a person resident outside India.
d. Any borrowing or lending in foreign exchange in whatever form or by whatever name known.
e. Any borrowing or tending in rupees in whatever form or by whatever name known, between a person resident in India and a person resident outside India.
f. Deposits between persons resident in and outside India.
g- Export, import or holding of currency or currency notes.
h. Transfer of immovable property outside India, other than a lease not exceeding five
years, by a person resident in India.
i. Acquisition or transfer of immovable property in India, other than a lease not exceeding
five years, by a person resident outside India.
j. Giving of a guarantee or surety in respect of any debt, obligation or other liability
incurred (i) by a person resident in India and owed to a person resident outside India
or (ii) by a person resident outside India.
Export of Goods and Services
Every exporter of goods must:
a. Furnish to the Reserve Bank or to such other authority a declaration in such form and
in such manner as may be specified, containing true and correct material particulars,
including the amount representing the full export value or, if the full export value of
the goods is not ascertainable at the time of export, the value which the exporter,
having regard to the prevailing market conditions, expects to receive on the sale of the
goods in a market outside India.
b. Furnish to the Reserve Bank such other information as may be required by the Reserve
Bank for the purpose of ensuring the realisation of the export proceeds by such exporter.
The Reserve Bank may, for the purpose of ensuring that the full export value of the
goods or such reduced value of the goods as the Reserve Bank determines, having regard to
the prevailing market-conditions, is received without any delay, direct any exporter to
comply with such requirements as it deems fit.
Every exporter of services shall furnish to the Reserve Bank or to such other authorities
a declaration in such form and in such manner as may be specified, containing the true and
correct material, particularly in relation to payment for such services.
Where any amount of foreign exchange is due or has accrued to any person resident in
India, such person shall take all reasonable steps to realise and repatriate to India such
foreign exchange within such period and in such manner, as may be specified by the Reserve
Bank.