1. Foreign Exchange Management
Act, 1999 - An Overview
Presentation by: Sudha g. Bhushan

2. Objective of the FEMA, 1999
• To consolidate and amend the law relating to foreign
exchange;
• Facilitating external trade and payments and
• Promoting orderly development and maintenance of forex
market in India
• Introduced after repulsion of FERA, an Act to control, regulate,
restrict or prohibit foreign exchange keeping in view the
interest of economic development of the country

3. Foreign Exchange
Management Act,
1999
Legal Provisions of
Notifications/Regul
ations
Foreign Exchange Notifications/Rules
Management
Circulars {AP (DIR
Master Circular series)}

4. Description of Sections
Chapters Matters Sections
I Preliminary, Preamble and Definitions 1-2
II Regulation and management of 3-9
Foreign Exchange
III Authorised Person 10-12
IV Contravention and Penalties 13-15
V Adjudication and procedure for appeal 16-35
VI Directorate of Enforcement 36-38
VII Miscellaneous Provisions 39-49

5. Important basic concepts
• Residential Status
• Capital Account transactions
• Current account transaction
• Liberalized Remittance Scheme
• Bank Accounts

6. Residential Status

7. Residential Status
Section 2(v)
"person resident in India" means:-
(i) a person residing in India for more than one hundred and
eighty-two days during the course of the preceding financial
year but does not include:-
A) a person who has gone out of India or who stays outside
India, in either case:-
(a) for or on taking up employment outside India, or
(b)for carrying on outside India a business or vocation
outside India, or
(c) for any other purpose, in such circumstances as
would indicate his intention to stay outside India for
an uncertain period;

8. Residential Status
(B) a person who has come to or stays in India, in either
case, otherwise than—
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in
India, or
(c) for any other purpose, in such circumstances as would
indicate his intention to stay in India for an
uncertain period;
(ii) any person or body corporate registered or incorporated in
India,
(iii) an office, branch or agency in India owned or controlled by
a person resident outside India,
(iv) An office, branch or agency outside India owned or
controlled by a person resident in India;

9. Example
• Mr Z had resided in India during the financial year 1999-
2000.He left India on 1st August,2000 for united states for
pursuing higher studies for 3 Years .What would be his
residential status during financial year 2000-2001 and during
2001-2002.
• Toy is an Japanese company having several business units all
over the world. It has a robotic unit with its head quarter in
Mumbai and has a branch in Singapore. Headquarter at
Mumbai controls the branch of robotic unit. What would be the
residential status of robotic unit in Mumbai and that of
Singapore Branch?

10. Example
• Miss is an air-hostess with the British Airways. She flies for 12
days in a month and thereafter a break for 18 days. During the
break, she is accommodated of ―base‖ which is normally the
city where the airways is headquartered. However ,for security
consideration ,she was based on Mumbai. During the financial
year ,she was accommodated at Mumbai for more than 182
days. What would be her residential status under FEMA?

11. Capital Account Transactions

12. Capital account transaction
A transaction which alters:-
• The assets;
• Liabilities; including contingent liabilities,
outside India of persons resident in India
or assets and liabilities in India of persons resident outside
India and includes transactions referred to in sub section (3) of
Section 6.
• As per notification no.FEMA1/2000-RB dated 3rd May 2000 no
person shall undertake or sell or draw FOREX to or from an
authorised person for any capital account transaction except
for the purposes specified in Schedule I and Schedule II

13. Schedule I- for Persons resident in India
• Investment by a person resident in India in foreign securities;
• Foreign currency loans raised in India and abroad by a person resident
in India;
• Transfer of immovable property outside India by a person resident in
India;
• Guarantees issued by a person resident in India in favor of a person
resident outside India;
• Export, import and holding of currency/currency notes;
• Loans and overdrafts (borrowings) by a person resident in India from a
person resident outside India;
• Maintenance of foreign currency accounts in India and outside India by
a person resident in India;
• Taking out of insurance policy by a person resident in India from an
insurance company outside India;
• Loans and overdrafts by a person resident in India to a person resident
outside India;
• Remittance outside India of capital assets of a person resident in India;

14. Schedule II- for Persons resident outside
India
• Investment in security of body corporate in India.
• Acquisition and transfer of immovable property in India by a
person resident outside India.
• Guarantee by a person resident outside India in favour of, or on
behalf of a person resident in India.
• Import and export of currency. currency notes into /from India
by a person resident outside India.
• Deposits between a person resident in India and a person
resident outside India.
• Foreign currency accounts in India of a person resident outside
India.
• Remittance outside India of capital assets in India of a person
resident outside India.

15. Capital account transaction - that cannot be
prohibited
• Amortisation of loan
• Depreciation of direct investment in the ordinary course of
business
• Acquisition of transfer of immovable property in India on lease
upto five years by a person resident in India.
• Acquisition or transfer of immovable property in India on lease
up to five years by a person resident outside India.
• Holding, owning, transferring or investing in foreign currency,
foreign security or any immovable property outside India by a
person resident in India if the same was acquired, held or owned
by such person when he was resident outside India or inherited
from a person who was resident outside India.
• Holding, owning, transferring or investing in Indian currency,
security or any immovable property in India by a person resident
outside India if the same was acquired, held or owned by such
person when he was resident in India or inherited from a person
who was resident in India.

16. Current Account Transactions

17. Current account transaction
Section 2(J)
"current account transaction" means a transaction other than a
capital account transaction, and;
includes:-
(i) payments due in connection with foreign trade, other
current business, services, and short-term banking and
credit facilities in the ordinary course of business,
(ii) payments due as interest on loans and as net income
from investments,
(iii) remittances for living expenses of parents, spouse and
children residing abroad, and
(iv) expenses in connection with foreign travel, education and
medical care of parents, spouse and Children.

18. Current account transaction
• Section 5 of the Act:-
any person may sell or draw foreign exchange to or from an
authorised person if such sale or drawal 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.
Via Notification no. G.S.R.38(E) dated 3May 2000,Central
Government has notified the rules to be called ―Foreign
Exchange Management (Current Account Transaction) Rules,
2000.

19. Prohibited transactions
As per the notification
Drawal of Foreign Exchange is prohibited in following Cases
• Transactions specified in Schedule I
Examples:-
Remittance out of lottery winnings
Remittance of Income from racing/Riding etc
Payment related to call Back Services.
• a travel to Nepal and /or Bhutan
• a transaction with a person resident in Nepal or Bhutan.

20. Transactions which require prior approval of
the Central Government
Purpose of Remittance Ministry /Department of
government whose approval
is required
Cultural Tours Ministry of Human Resources
Development, (Department of
Education and culture)
Advertisement in foreign print Ministry of Finance,
media exceeding USD 10,000) (Department of Economic
Affairs)
Remittance of prize e money / Ministry of Human Resources
sponsorship of sports activity Development (Department of
abroad by a person other than Youth Affairs and Sports)
International / National / State
Level sports bodies, if the
amount involved exceeds USD
100,000.

21. Transaction for which approval of Reserve
Bank of India
 Release of exchange exceeding USD 10,000 in one calendar
year, for one or more private visits to any country (except
Nepal or Bhutan).
 Gift remittance exceeding USD 5000 per remitter/Donor per
annum
 Donation exceeding USD 5000 per remitter/donor per annum.
 Exchange facilities exceeding USD1,00,000 for persons going
abroad for employment.
 Release of foreign exchange, exceeding USD 25,000 to a
person, irrespective of period of stay, for business travel, or
attending a conference or specialised training or for
maintenance expenses of a patient going abroad for medical
treatment or check-up abroad, or for accompanying as
attendant to a patient going abroad for medical
treatment/check-up.

22. Transaction for which approval of Reserve
Bank of India
Remittance for maintenance of close relatives abroad
i. exceeding net salary (after deduction of taxes, contribution to
provident fund and other deductions) of a person who is
resident but not permanently resident in India and –
(a) is a citizen of a foreign State other than Pakistan; or
(b) is a citizen of India, who is on deputation to the office or
branch or subsidiary or joint venture in India of such foreign
company.
ii. exceeding USD 100,000 per year, per recipient, in all other
cases.
Explanation: For the purpose of this item, a person resident
in India on account of his employment or deputation of a
specified duration ; the duration of which does not exceed
three years, is a resident but not permanently resident

23. Transaction for which approval of Reserve
Bank of India
• Release of foreign exchange, exceeding USD 25,000 to a
person, irrespective of period of stay, for business travel, or
attending a conference or specialised training or for
maintenance expenses of a patient going abroad for medical
treatment or check-up abroad, or for accompanying as
attendant to a patient going abroad for medical
treatment/check-up.

24. Transaction for which approval of Reserve
Bank of India
• Release of exchange for meeting expenses for medical
treatment abroad exceeding the estimate from the doctor in
India or hospital/doctor abroad.
• Release of exchange for studies abroad exceeding the
estimate from the institution abroad or USD 100,000, per
academic year, whichever is higher.
• Commission, per transaction, to agents abroad for sale of
residential flats or commercial plots in India exceeding USD
25,000 or 5% of the inward remittance whichever is more
• Remittance exceeding USD 1,000,000 per project, for any
consultancy service procured from outside India.
• Remittance exceeding USD 100,000 by an entity in India
by way of reimbursement of pre incorporation expenses.

25. Liberalised Remittance Scheme

26. Liberalised Remittance
• Authorised Dealers may freely allow remittances by resident
individuals up to USD 200,000 per financial year for any
permitted current or capital account transactions or a
combination of both.
• This limit includes remittance towards gift and donation by a
resident individual.
• Remittances under the scheme are allowed only in respect of
permissible current or capital account transaction.

27. BANK ACCOUNTS

28. Type of bank accounts- Non residents
Classification
Of
Account
Available to
NON Resident
Non Resident
Non Resident Non Resident
(Foreign Currency) (External) Rupee Account
(ordinary) Account
Account NRE A/C
NRO A/C
FCNR-B A/C

29. Non-resident Ordinary (NRO) Rupee Account
Any person resident outside India may open NRO account
with an authorised dealer or an authorised bank for the
purpose of putting through bonafide transactions
denominated in Rupees, not involving any violation of the
provisions of FEMA, rules, Regulations made thereunder.
The accounts may be maintained in the form of savings or
current or term deposit accounts.

30. Non-resident Ordinary (NRO) Rupee Account
Debits Credits
• All local payments in rupees. • Proceeds of remittance from
outside India through normal
• Remittance outside India of
banking channel received in
current income like rent,
foreign Currency which is fully
dividend in India of the account
convertible
holder
• Foreign Currency-tendered by
• Remittance up to USD one
account holder during his
million, per financial year for
temporary visit to India
all bonafide purposes to the
satisfaction of the authorised• Transfers from rupee account
dealer. of Non resident Banks.
• Legitimate dues in India of the
account holder

31. Non-resident external (NRE) Rupee Account
• Non Resident Indians may open, with authorised banks in
India, Non-resident (External) Accounts (NRE
Accounts), designated in rupees.
• These accounts can be maintained in the form of savings,
current or term deposit accounts.
• Opening of NRE Accounts jointly in the names of two or more
non residents is permitted provided all the account holders
are persons of Indian nationality or origin.

32. Non-resident external (NRE) Rupee Account
Debits Credits
• Local disbursements • Remittances in Foreign
Exchange
• Remittance outside India.
• Transfer from other NRE/FCNR
• Transfer to NRE/FCNR accounts
account
of the account holder
• Refund when permissible
• Investment in shares /
payment was made from same
Securities / commercial paper
account
of an Indian company of for
purchase of immovable • Maturity proceeds of
property in India. Government Securities
including National Plan etc.
• Proceeds of foreign currency by
account holder during his
temporary visit to India

33. FCNR Account
• FCNR A/c: These accounts can be opened in four foreign
currencies:
• Pounds Sterling;
• US Dollars;
• Japanese Yen;
• Euro.
• For the purpose of opening an account, remittance in foreign
exchange, in the same currency, should be received in India
• Can be opened only as fixed deposits
• Principle and interest - remittable outside India
• Permissible debits and credits are same as NRE account.

34. Type of bank accounts
Classification
Of
Accounts available
to Residents
Exchange Earners Resident Foreign
Resident Foreign
Foreign Currency Currency
Currency Account
Account (Domestic) Account

35. Exchange Earners Foreign Currency Account
• A person in India can open, hold and maintain with an
authorised Dealer in India, a Exchange Earners Foreign Currency
Account
• Credited with the 100% FOREIGN EXCHANGE EARNINGS
• No restriction on withdrawal in Indian Rupees

36. Resident Foreign Currency A/C
• A person in India can open, hold and maintain with an
authorised Dealer in India, a RESIDENT FOREIGN CURRENCY
ACCOUNT, out of Foreign exchange
• Received as pension or any other superannuation or any
other monetary benefit from employer outside India
• Realised on conversion of asset
• Received or acquired as gift or inheritance
• Received as the proceeds from life insurance policy settled in
Foreign currency

37. Resident Foreign Currency (Domestic) A/C
• A resident individual may open, hold and maintain with an
authorised Dealer in India, a RESIDENT FOREIGN CURRENCY
(DOMESTIC) ACCOUNT, out of Foreign exchange
• acquired by him from an authorised person for travel abroad
and represents the unspent amount thereof.
• acquired by him, while on visit to any place outside India, by
way of payment for services.
• acquired by him, from any person not resident in India and
who is on visit to India, as honorarium, gift, for services
rendered abroad
• Acquired by him in settlement of any lawful obligation from
any person not resident in India.

38. Contravention of FEMA
• Any person, contravening FEMA, shall be liable, upon
adjudication, to a penalty up to
• three times the sum involved in such contravention, where
such amount is quantifiable,
• up to Rupees Two hundred thousand, where the amount is
not quantifiable.
• In addition, where such contravention is a continuing one, the
person will be liable to further penalty, which may extend to
Rupees Five thousand for every day after the first day, during
which the contravention continues.

39. Income tax clearance
• Remittances to non-resident will be allowed to be made by the
authorised dealers on production of an undertaking by the
remitter and a certificate from a Chartered Accountant in the
formats prescribed by the Central Board of Direct Taxes,
Ministry of Finance, Government of India

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