Foreign Exchange Management Act – Although Central Government formulates policy relating to foreign trade yet it is Reserve Bank of Indian that controls foreign trade practices through foreign exchange control Act, “Foreign Exchange Regulation Act 1947” was the first formal legislative measure to control foreign exchange. It was replace by Foreign Exchange Regulation Act, 1974, popularly known as FERA.
In the era of economic liberalization, it was felt necessary to have more efficacies management of foreign exchange. Accordingly, with a view to encouraging globalization and economic liberalisation, control government continued a Task Force to review FERA. On the recommendations of the Task Force Foreign Exchange Management Bill 1994 was introduce in the Parliament. In November 1999, Lok Sabha and on December 8, 1999, Rajya Sabha passed this bill. having been passed by both the Houses of Parliament, the bill received the assent of the President on December 9,1999. Thus, on June 1,2000, in place of “FERA”, the Foreign Exchange Management Act 1999 came into force. It is popularly addressed as FEMA. This Act is of great significance from the view point of foreign trade and foreign exchange.
Short Title and Extent of the Act
- 1. This Act may be called the Foreign Exchange Management Act, 1999.
- 2. t extends to the whole of India.
- 3. It shall apply to all branches, offices and agencies outside India owned or controlled by a person resident in India.
- 4. It shall come into force on such date as the Central Government may, by notification in the official Gazette, appoint. However, different dates may be appointed for different provisions of this Act.
This Act came into force on June 1, 2002 by a gazette notification of the Central Government.
Objects of the Act
1. It aims at Consolidating and amending the law reflating to foreign exchange with the objective of facilitating external trade and payments.
2. Promoting the orderly development and maintenance of foreign exchange market in India.
Regulation And Management Of Foreign Exchange
1. Dealing in Foreign Exchange etc.
FEMA has imposed certain restrictions on dealing in foreign exchange security, except as otherwise provided in this Act, rules or regulations made there under or with the general or special permission of the Reserve Bank, no person shall:
- (i) deal in or transfer any foreign exchange or foreign security to any person not being an authorised person; Sec 3(a)]
- (ii) make any payment to or for the credit of any person resident outside India in any manner; Sec 3(b)]
- (iii) receive otherwise through an authorised person, any payment by order or on behalf of any person resident outside India in any manner; Sec 3(c)]
- (iv) enter into any financial transaction in India as consideration for acquisition or creation or transfer of a right to acquire, any asset outside India by any person. [Sec 3(d)]
2. Holding of Foreign Exchange
Except as otherwise provided in this Act, no person resident in India shall acquire, hold own, posses or transfer any foreign exchange, foreign security or any immovable property situated outside India. [Sec 4]
3. Current Account Transactions
Any person may sell or draw foreign exchange to or form an authorized person if such sale or drawl 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. [Sec 5]
4. Capital Account Transactions
(A) Subject to the provision of sub-section (2) any person may seller draw foreign exchange to or from an authorised person for a capital account transaction.
(B) The Reserve Bank may, in consultation with the Central Government, specify:
- (i) any class or classes of Capital Account transactions which are permissible;
- (ii) the limit up to which foreign exchange shall be dismissible for such transactions;
Provided that the Reserve Bank shall not impose any restriction on the drawl of foreign exchange for payments due on the account of amortization of loans or for depreciation of direct investment. [Sec 6(2)]
(C) Without prejudice to the generality of the provision of sub-section(2), the Reserve Bank may by regulations prohibit, restrict or regulate the following.
- (i) transfer or issue of any foreign security by a person resident in India.
- (ii) transfer or issue of any security by a person resident outside India.
- (iii) transfer or issue of any security or foreign security by any branch, office, or agency in India or a person resident outside India;
- (iv) any borrowing or lending in foreign exchange in whatever form of by whatever name called;
5. Export of Goods and Services
(1) Every exporter of goods shall:
- (i) 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 ful 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.
- (ii) 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.
(2) 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 seems fit.
(3) 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 particulars in relation to payment for such services. [Sec 7]
About Foreign Exchange Management Act
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