BIRD’S EYE VIEW OF FEMA  
                                                                By CA D S Vivek & CA Chandra Shekar B D  
                 Introduction 
                         The Indian government has formulated the Foreign Exchange Management 
                         Act (FEMA), which relates to the management of exchange in the country. 
                         FEMA has assisted the country by managing the foreign exchange resources 
                         of the country and international trade and investments . 
                         The  Government of India has  changed its  position  from  a  controller  to  a 
                         facilitator due to the requirement of WTO and International Monetary Fund 
                         to participate in the global business system. One may not be wrong to state 
                         that it was the appropriate and moderate regulations imposed under FEMA 
                         and regulated by RBI, that saved India’s economy from the downturn being 
                         experienced in others parts of the world. 
                 Formulation 
                        Foreign Exchange Regulation Act (FERA), 1947,  
                        Foreign Exchange Regulation Act, 1973 (FERA) 
                        Foreign Exchange Management Act, 1999 (FEMA) – superseded FERA 
                 Objective 
                          FERA, 1947                         FERA, 1973                         FEMA, 1999 
                 Conserving,  regulating  and  Consolidate, regulate dealing  Facilitate external trade and 
                 controlling  foreign  exchange  in  foreign  exchange.  Proper  payments and for promoting 
                 resources of the country           Utilisation in the interest of  the orderly development and 
                                                    the economic development of  maintenance             of     foreign 
                                                    the country                        exchange market in India 
                  
                 Effective Date 
                          
                         The FEMA was passed by the Lok Sabha in October, 1999, received the assent 
                         of the president of India in December, 1999 and came into force with effect 1st 
                         June 2000. 
                  
                  
                  
                  
                  
                  
                 Applicability  
                  
                           Extends to the whole of India  
                           In addition it shall also applied to all branches offices, agencies outside 
                             India  owned  or  controlled  by  a  person  resident  in  India  and  to  any 
                             contravention  there  under  committed  outside  India  by  any  person  to 
                             whom this Act applies.  
                 Features 
                        This enactment is not an entirely self contained law. It is supported by various 
                         Regulations  and  Circulars.  As  a  General  Practitioner  in  the  field  of 
                         international consultancy, one  needs to have a working knowledge of the 
                         following – 
                             o  FEM(Realisation,  Repatriation  and  Surrender  of  Foreign  Exchange) 
                                 Regulations, 2000 
                             o  FEM(Possession and Retention of Foreign Currency) Regulations, 2000 
                             o  FEM(Permissible Capital Account Transactions) Regulations, 2000 
                             o  FEM(Transfer or Issue of Security By a Person Resident Outside India) 
                                 Regulations, 2000   
                             o  FEM(Issue  of  Security  in  India  by  a  Branch  Office  or  Agency  of  a 
                                 Person Resident Outside India ) Regulations, 2000   
                             o  FEM(Transfer or Issue of any Foreign Security) Regulations, 2000   
                             o  FEM(Establishment  in  India  or  Branch  or  Office  or  Other  Place  of 
                                 Business) Regulations, 2000   
                             o  FEM(Off Shore Banking Unit) Regulations, 2000   
                             o  FEM(Investment in Firm or Proprietary Concern In India) Regulations, 
                                 2000   
                             o  FEM(Acquisition  and  Transfer  of  Immovable  Property  in  India) 
                                 Regulations, 2000   
                             o  FEM(Acquisition and Transfer of Immovable Property outside India) 
                                 Regulations, 2000  
                             o  FEM(Remittance of Assets) Regulations, 2000   
                             o  FEM(Borrowing or Lending in Foreign Exchange) Regulations, 2000 
                             o  FEM(Borrowing or Lending in Rupees) Regulations, 2000 
                             o  FEM(Deposit) Regulations, 2000 
                             o  FEM(Guarantees) Regulations, 2000 
                             o  FEM(Insurance) Regulations, 2000 
                             o  FEM(Foreign Exchange Derivate Contracts) Regulations, 2000, 
                             o  FEM(Foreign  Currency  Accounts  By  a  Person  Resident  In  India) 
                                 Regulations, 2000 
                             o  FEM(Manner of Receipt and Payment) Regulations, 2000 
                             o  FEM(Export and Import Currency) Regulations, 2000 
                             o  FEM(Withdrawal  of  General  Permission  to  Overseas  Corporate 
                                 Bodies(OCB’s) Regulations, 2000 
                             o  FEM(Adjudication Proceedings and Appeal) Rules, 2000 
                             o  FEM(Encashment  of  Draft,  Cheque,  Instrument  and  Payment  of 
                                 Interest) Rules, 2000 
                             o  FEM(Authentication of Documents) Rules, 2000 
                             o  FEM(Compounding Proceedings) Rules, 2000 
                             o  FEM(Removal of Difficulties) Order, 2000 
                             o  FEM(Recruitment,  Salary  and  Allowances  and  Other  Conditions  of 
                                 Services of Chairperson and Members)Rules, 2000 
                              
                             (All of the above as amended from time to time) 
                        Also have to be aware of the following enactments/provisions-  
                             o  Income tax 
                             o  Property law 
                             o  Law relating to citizenship and domicile 
                             o  Foreign Contribution (Regulation) Act 
                             o  Code of Criminal Procedure 
                             o  Indian Penal Code 
                             o  Indian Evidence Act 
                             o  General Clauses Act 
                             o  Public Debt Act 
                             o  Company law 
                             o  Securities Law 
                             o  Customs Act 
                             o  Prevention of Money Laundering Act  
                             o  Antique and Art Treasure Act   
                             o  Conservation  of  Foreign  Exchange  and  Prevention  of  Smuggling 
                                 Activities Act 
                          
                 Governed by  
                        Reserve Bank of India 
                  
                 Year  
                                                       th
                        RBI follows 1st July to 30  June as a financial year.  
                  
                 Regulation and Management  
                         The  RBI  through  its  foreign  exchange  department  central  office  regulates 
                         FEMA  through issue of – 
                             o  Notifications  
                             o  Circulars  
                                        AP(Dir) Series  
                             o  Forms  
                                        AP (Dir) Series 
                             o  Master Circulars  
                             o  DIPP Circulars (this is not by RBI) 
                             These notifications, circulars including Master Circulars, issued by RBI is 
                         available  on  its  website  www.rbi.org.in.  The  section  is  searchable  on 
                         functions, departments, date and period. This quick link has been created to 
                         facilitate easy access to the Most Important Policy Documents released by the 
                         Reserve Bank of India. 
                         Master Circulars 
                         Master  Circulars  are  a  one-point  reference  of  instructions  issued  by  the 
                         Reserve Bank of India on a particular subject between July-June. These are 
                         issued  on  July  1  every  year  and  automatically  expire  on  June  30  of  the 
                         following year. These will have the updated regulations till the issue of the 
                         circular on that particular subject the circular deals with 
                          Sl                                      Master circular 
                          No 
                           1     Master  circular  on  Direct  investments  by  residents  in  Joint 
                                 venture(JV)/Wholly  owned  subsidiary(WOS)  abroad  (  Used  for 
                                 investment made by Indian companies outside India )  
                           2     Master  circular  on  Foreign  Investment  in  India  (Used  for  Foreign 
                                 Companies or Foreign nationals investing in Indian business entities ) 
                                    
                           3     Master circular on Non-Resident Ordinary Rupee(NRO) Account 
                           4     Master  Circular  on  Remittance  facilities  for  Non  resident 
                                 Indians/Persons  of  Indian  Origin/Foreign  National  (used  to  refer 
                                 what  funds  can  be  repatriated  outside  India  from  the  funds  or 
                                 transaction made in India) 
                           5     Master circular on Misc remittances from India – facilities for residents 
                                 (Used to refer what type of transactions and what quantum of funds 
                                 can be remitted by residents outside India) 
                           6     Master circular on Risk Management and Interbank dealings 
                           7     Master  circular  External  commercial  borrowings  and  Trade  Credits  
                                 (used to refer  what type of borrowings can be taken by residents from 
                                 Non residents and on what terms) 
                           8     Master circular on Import of goods and services 
                           9     Master circular on export of goods and services 
                         For detailed circulars login in to the blow mentioned website 
                 http://www.rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspx