FEMA, 1999: A Working Guide to the Regime Governing Cross-Border Money
This article sets out the structure of the Foreign Exchange Management Act, 1999 ("FEMA"), the authorities that administer it, and the provisions an assessee dealing abroad meets most often.
It matters because importers, exporters, overseas investors and professionals receiving foreign remittances all transact under this Act, and a contravention that begins as a routine remittance error can end in a notice. Knowing which section governs a transaction is the first step in advising on it.
From FERA to FEMA
FEMA was enacted in 1999 and came into force on 1 June 2000. It repealed and replaced the Foreign Exchange Regulation Act, 1973 ("FERA"). The change of statute also changed the approach. The stated purposes of FEMA are to facilitate external trade and payments and to promote the orderly development and maintenance of the foreign exchange market in India. It is therefore a regime that permits transactions on conditions, and not one that merely prohibits them.
Who does what
Three sets of actors appear in almost every FEMA question.
- The Reserve Bank of India issues the directions and regulations under which foreign exchange transactions are carried out.
- Banks and other authorised persons execute those transactions for individuals and businesses within the rules.
- The Enforcement Directorate acts where a contravention is alleged.