Foreign exchange Management Act (FEMA) 1999 came into effect in India from June 1, 2000 replacing earlier law FERA 1973. FEMA is a regulatory mechanism that enables the Reserve Bank of India to pass regulations and the Central Government to pass rules relating to foreign exchange in tune with the Foreign Trade policy of India. This act is not only applicable to residents of India within India, but also applicable to all branches, offices and set-ups outside India which are owned or controlled by a person resident in India.
Salient features of FEMA
Under FEMA the dealings of foreign exchange are managed instead of regulated under FERA (Foreign Exchange Regulation Act).
The payments made to any person outside India or receipts from them in foreign exchange and foreign security is subject to specific permission under FEMA.
The transactions involving current account for external trade does not require RBI’s permission. However, on the ground of public interest current account dealings can be restricted by the Central Government.
RBI is empowered to subject the capital account transactions to a number of restrictions, although the selling or drawing of foreign exchange is routed through an authorized dealer (AD).
Residents of India will be permitted to carry out transactions in foreign exchange, foreign security or to own or hold immovable property abroad if the currency, security or property was owned or acquired when he/she was living outside India, or when it was inherited by him/her from someone living outside India.
