What is the full form of FEMA?

The full form of FEMA is Foreign Exchange Management Act. The Indian Central Government passed the Foreign Exchange Management Act to ease international payments and cross-border trade in India. Foreign Exchange Regulation Act (FERA) was replaced by FEMA (Foreign Exchange Management Act) in 1999. (Foreign Exchange Regulation Act). FEMA (Foreign Exchange Regulation Act) was established to remedy all of FERA’s defects and weaknesses, and it implemented a number of economic modifications (major reforms). The main reason FEMA was established was to de-regulate and liberalise India’s economy.

FEMA was founded in India with the main objective of enabling global trade and payments. FEMA was established in order to support the orderly development and administration of the Indian currency market.

• The two categories of foreign currency transactions are capital account transactions and current account transactions.
• All capital transactions are included in the capital account, whereas merchandise trade is included in the current account. The entry and exit of funds into and out of a country or countries during the course of a year due to dealing in goods, providing services, and earning income are known as current account transactions.
• A country’s economic health can be assessed by looking at its current account. The capital account accounts for the flow of capital in the economy as a result of capital revenues and expenditures, as was previously said. The balance of payments is composed of both current and capital accounts. The capital account recognises both domestic investment in overseas assets and foreign investment in domestic assets.
• FEMA (Foreign Exchange Management Act) is applicable to all of India, including organisations and branches outside of India (owned or managed by an Indian Citizen).

FEMA’s Functions

FEMA’s primary goal is to facilitate international trade. Its ongoing process is adhered to by regulations pertaining to the formalities and procedures of foreign exchange transactions in India. It (FEMA) is divided into two categories:

• Account-current transaction
• Capital account activity

FEMA has offices all around the world and is applicable across India.

A country’s net revenue is shown in the current account, whereas the capital account measures the net change in assets and liabilities during a given year. While capital accounts deal with sources and the use of capital, current funds allocate with the receipt and payment of cash and non-capital goods. The payment balance represents an addition to the existing account, and the capital account is always zero. While the capital account monitors inflows and outflows and identifies a country’s assets and liabilities, the current version deals with short-term transactions. Loans, various sources of capital, and foreign investment banks are all included.

• Foreign exchange transactions that are made by those who are not authorised are prohibited.
• FEMA regulations forbid seven different current account transactions. Transactions like lotteries, football pools, and others are included.
• FEMA regulations give ROIs (Residents of India) the flexibility to own, own, or transfer any foreign commodity.

The Foreign Exchange Management Act (FEMA) was first passed in 1999, whereas the Foreign Exchange Regulation Act (FERA) was enacted much earlier, in 1973. FEMA is in charge of foreign exchange, whereas FERA handles the currency portion. FERA adopts a rigorous approach to foreign exchange transactions, whereas FERA is flexible. FEMA has imprisonment as a penalty for breaking the law, while FERA has a fine or both (in case a fine has not been made on time).

FEMA’s primary goal is to promote foreign trade to maintain and develop the nation’s FX market. The seven chapters that make up this law are broken into 49 sections, of which 12 deal with the operational portion and the remaining 37 with fines, appeals, and other issues.

• Specific actions, such as payments made to anyone outside India or currency exchange transactions, are forbidden.
• There is a chance that the federal government could forbid it from engaging in current account foreign exchange transactions through a designated individual.
• Suppose the property, security, or cash was owned when the resident of India was residing outside of India. In that case, they can conduct foreign exchange transactions and possess any fixed property outside India.

The following are the provisions of FEMA, 1999:

• Trading in currencies, etc.
• Transactions on current accounts
• Trading (export of commodities and services) (export of goods and services)
• RBI will check on approved individuals

A person who disobeys the conditions of FEMA or any rule, instruction, regulation, order, or notification made thereunder may be penalised up to Rs. 2 lakh, or three times the amount in question. He will be subject to an extra penalty of Rs. 5,000 for each day the violation continues if it continues.

• The Enforcement Directorate, or FEMA’s Head Office Director, is in New Delhi.
• The five zones are further broken down into five field units overseen by Chief Enforcement Officers and seven sub-zonal offices run by Assistant Directors.
• There were other noteworthy details, such as the fact that it did not apply to Indians who resided outside India. The eligibility was based on the number of days a person had spent in India in the previous fiscal year (182 days or more to be a resident). It was emphasised that while determining residence, an office, branch, or agency can be regarded as a “person.” To be recognised as a FEMA-designated entity, a person must meet specific standards.

FEMA gave the central government the authority to impose restrictions on and regulate three things: money, transactions involving foreign securities, and payments made to or received from people outside India.

It specified the circumstances in which the Reserve Bank of India (RBI) or the government required express authorisation to purchase and store foreign currency.

The law divides foreign exchange transactions into two categories: capital account and current account. The assets and liabilities of a person living outside India or inside India but residing outside India were altered by a capital account transaction. Therefore, any transaction that changed the overseas assets and liabilities of an Indian resident in a foreign country, or the reverse, was regarded as a capital account transaction. A current account transaction was any other kind of transaction.