WHAT IS FEMA?
The Foreign Exchange Management Act, 1999 is an Act of the Parliament of India “to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India”.
The Central Government of India Formulated an act to encourage external payments and across the border trades in India known as the Foreign Exchange Management Act. FEMA (Foreign Exchange Management Act ) was introduced in the year 1999to replace an earlier acr FERA ( Foreign Exchange Regulation Act). FEMA was formulated to fill all the loopholes and drawback of FERA (Foreign Exchange Regulation Act) and hence several economic reforms were introduced under the FEMA act . FEMA was basically introduce to de- Regularize and have a liberal economy in India.
Foreign Exchange Management Act
FEMA was introduced in Indian was to facilitate external trade and payments. In addition to this , FEMA was also formulated to assist orderly development and maintenance of the Indian forex market. FEMA oulines the formilities and procedures for the dealings of all foreign exchange transactions in India. These foreign exchange transaction have been classified into two categories – Capital Account Transactions and Current Account Transactions .
Under tha FEMA act , the balance of payment is the record of dealing between the citizen of different countries in goods , services and assets . It is mainly divided into two categories i.e Capital Account and Current Acccount comprises trade of merchandise .
Current account transactions are those transactions which involve inflow an outflow of money to and from the country / countries during a year, due to the trading /rendering of commodity , service and income . The current account is an indicator of an economy status.
As mentioned above the balance of payment comprises current and capital accounts , the remainder of the Balance of Payments is Capital Accounts, which consists the movement of capital in the economy due to capital receipts and expenditure . Capital account recognizes domestic investment in foreign assets and foreign investment in domestic.
Role Of FEMA in Export Import
# Authorised persons could facilitate forex trading; however , the act empowered the RBI to put several restrictions on their capital account. Authorized persons were expected to provide details and information regarding forex transactions to the RBI on a regular basis.
#FEMA law allowed Indian residents to carry out trasactions in forex , foreign security, or to own immovable property was owned or acquired when he/ she was living outside India , or if it was inherited by him/ her from someone living outside India .
# FEMA compliance covered forex trasactions and remittances which included individuals or enterpreneurs moving money in or out of India , exchanging foreign currency in India for travel purpose .
# There were many subsequent regulations and functions issued under the act addressing specific issues such as authentication of documents , current account transactions , adjudication proceedings appeal compounding proceedings, permissible capital account transactions and borrowing or lending in forex, permissible capital account transaction and borrowing or lending in forex , amongst others.
# As per the rules defined under FEMA, thwre are few limits determined such as – if a person enacts a breach against quota , the penalty will be thrice the sum. Events where the amount is not quantifiable , the penalty imposed remains up to Rs 2 lakh. In occurrences where the violation continues on adaily basis , the amount stands at rs 5000 daily (excluding the first day of violation ). Also , if there any kind of property which is involved during the course the asset will be confiscated and considered as a fee under contra vention of law.
Indeed, FEMA was drafted to create a more liberal foreign exchange market in India . The Act encouraged deregulation of foreign exchange an d smooth international trade .FEMA also has a distinct administrative difference from FERA ,which sought to impose sweeping regulations on every aspect of India forex transactions that might have an impact on national security and the wider national economy , and opened up individual forex transactions to the free market.