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FEMA Act 1999 or Foreign Exchange Management Act, 1999 (FEMA)

The Foreign Exchange Management Act, 1999 popularly known as FEMA 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"

It extends to the whole of India replacing FERA, which had become incompatible with the pro-liberalisation policies of the Government of India. It enabled a new foreign exchange management regime consistent with the emerging framework of the World Trade Organisation (WTO). It also paved the way for the introduction of the Prevention of Money Laundering Act, 2002, which came into effect from 1 July 2005.

Objective of the FEMA Act:

  • Utilize foreign exchange resource of the country effectively.
  • Facilitate external trade, payment, orderly development & maintenance of foreign exchange in India.

Its head office is known as Enforcement Directorate is situated in New Delhi & headed by a Director. It is very important to foreign trade & to maintain good relations with other countries.

The FEMA is applicable:
  • To the whole of India.
  • Any Branch, office & agency, which is situated outside India, but is owned or controlled by a person resident in India.

Main Features of FEMA Act

  • Activities such as payments made to any person outside India or receipts from them, along with the deals in foreign exchange and foreign security is restricted. It is FEMA that gives the central government the power to impose the restrictions.
  • Without general or specific permission of the MA restricts the transactions involving foreign exchange or foreign security and payments from outside the country to India – the transactions should be made only through an authorised person.
  • Deals in foreign exchange under the current account by an authorised person can be restricted by the Central Government, based on public interest generally.
  • Although selling or drawing of foreign exchange is done through an authorized person, the RBI is empowered by this Act to subject the capital account transactions to a number of restrictions.
  • 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.

Broadly speaking FEMA, covers three different types of categories

  1.  Person.
  2.  Person Resident in India.
  3. Person Resident outside India.

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