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FEMA Compliance

Foreign Exchange Management Act (FEMA) Compliance 

The Foreign Exchange Management Act of 1999, or FEMA, was enacted to replace the previous Foreign Exchange Regulation Act (FERA). On the first day of June 2000, FEMA became an act. FEMA has been implemented as the post-liberalization policy which was not fit in with FERA. The FEMA made a major improvement by making all foreign exchange offences civil offences rather than criminal offences as required by FERA.

The main goal of the Foreign Exchange Management Act (1999) is the consolidation and modification of external exchange law to make external trade and payments smoother.

It has been formulated in order to encourage orderly foreign-exchange market development and maintenance in India. All parts of India are covered by FEMA.  The act also covers all branches, departments, and organizations outside India that are owned or managed by an Indian citizen.The headquarters of the FEMA is located in New Delhi and managed by a Director, also known as the Enforcement Directorate. The Board of Directors also consists of 5 zonal offices, headed by an Adjutant Director, based in Delhi, Mumbai, Kolkata, Chennai and Jalandhar. Each area is further divided into seven sub-zonal offices led by the assistant managers and 5 field units headed by the CEO.

FEMA is a regulatory process that allows the Reserve Bank of India to issue regulations and the Central Government to issue rules concerning foreign exchange in accordance with India's Foreign Trade Policy.

Features and Objectives of FEMA:

  • Payments to or receipts from those outsides of India, as well as transactions in foreign exchange and foreign protection, are all prohibited. The power to enforce restrictions is provided to the central government by FEMA.
  • Current account transactions are free with subject to reasonable restrictions that may be imposed.
  • MA restricts transactions involving foreign exchange or foreign security and payments from outside the country to India without general or specific permission from FEMA – the exchanges must be made only via an authorized person.
  • The Central Government may impose restrictions on permitted persons' dealings in foreign exchange under the current account, based on the public interest in general.
  • Since foreign exchange is sold or drawn through an approved individual, the RBI is empowered by this Act to impose a range of restrictions on capital account transactions.
  • The main reason for the establishment of FEMA in India was to facilitate international trade and payments. In addition, FEMA was created to aid in the orderly construction and enhancement of the Indian forex market.
  • FEMA establishes the formalities and procedures for all foreign exchange transactions in India. These foreign exchange transactions are divided into two types: capital account transactions and current account transactions.
  • The balance of payment, as defined by the FEMA Act, is the record of transactions between citizens of different countries in goods, services, and assets. It is divided into two sections: capital account and current account.
  • Capital Account includes all capital transactions, whereas Current Account includes all merchandise trade. Current Account transactions are those which involve the inflow and outflow of money to and from country/countries over the course of a year as a result of the trading/rendering of commodities, services, and income.
  • The current account is a method of measuring of an economy's growth. As previously stated, the balance of payment is made up of current and capital accounts. The remainder of the balance of payment is made up of capital accounts, which represent the movement of capital in the economy as a result of capital receipts and expenditure.

Applicability of FEMA Act:

FEMA (Foreign Exchange Management Act) applies to the entire country of India as well as agencies and offices located outside of India (which are owned or managed by an Indian Citizen). FEMA's headquarters, known as the Enforcement Directorate, are in New Delhi.

FEMA Act applicable to as follows:

  • Foreign exchange,
  • foreign security,
  • the exportation of any commodity and/or service from India to a country outside India,
  • Importations of any commodity and/or service from outside India are all covered by FEMA.
  • Securities are defined as such in the Public Debt Act of 1994.
  • Any type of purchase, sale, or exchange (i.e. Transfer).
  • Banking, finance, and insurance are all examples of financial services.
  • Any overseas company owned by a non-resident Indian (NRI) (Non-Resident Indian)
  • Any foreign company owned by an NRI (Non-Resident Indian) with a stake of 60% or more.
  • Any Indian citizen, whether residing in India or elsewhere (NRI).

The FEMA Act categorises current account transactions into three categories:

  • prohibited transactions by FEMA
  • The transaction requires permission from  the Central Government and
  • The transaction requires permission from the RBI.

Prohibition on withdrawal of Foreign exchange:

  • Any amount rose as a result of winning the lottery.
  • Any type of remittance from racing/riding earnings, etc.
  • Any remittance for the purchase of a lottery ticket, football pools, sweepstakes, banned/prescribed magazines, etc.
  • Payment of export commissions to Indian companies for equity investment in joint ventures/wholly-owned subsidiaries in other countries.
  • Any company can pay a dividend. This provision, however, is only valid if the dividend balancing requirement is met.
  • Except for commissions up to 10% of the invoice value of tea and tobacco exports under Rupees State Credit Routes, commissions on exportation are paid in rupees.
  • Payment for telephone "Call back Services."
  • Travel to Bhutan or Nepal.
  • Interest income on funds held in an NRSR Account, also known as a Non-resident Special Rupees Scheme account, is remitted.
  • A transaction with a Bhutanese or Nepalese resident.

Foreign Exchange Withdrawal Route

Foreign Exchange can be obtained via the Prior Approval Route or the General Permission Route, according to the Reserve Bank of India. Drawl of foreign exchange transactions that need prior approval from the Central Government are as follows:

  • Corporate Donations- 1% of foreign earning in last 3 FY or $ 5 million whichever is less.
  • Gift per donor/Donations - Remittance up to $ 1,25,000 in FY.
  • visiting out of India for employment - $ 1,00,000 US dollar only
  • Maintenance of Close relatives Remittance outside India- salary of a person not being a permanent resident in India & and a foreign state citizen other than Pakistan.
    Or $ 1,00,000 a FY per recipient in all other cases.
  • Tours of cultural significance. (except Bhutan & Nepal)- $ 10,000 or its equivalents for 1 or more private visits in 1 year.
  • Remittance of freight from chartered vessels.
  • Meeting the expenses of a person accompanying as attendance to a patient going medical check-up or for medical treatment abroad
  • Foreign company Remittance for Health Insurance - Freely allow
  • Remittance of container detention charges in excess of the rate set by the DGS (Director General of Shipping).
  • emigrations Remittance facility - $ 1,00,000 or the specified amount by emigration nation which is maximum $ 1,00,000 only
  • Advertisement in a foreign country's print media for some purpose other than supporting tourism, international bidding, and foreign investments (in excess of $10,000) by a state government and its public sector units.
  • commission Payment to an agent outside India for selling residential plot or commercial in India- $ 25000 or 5 % of inward remittance per transactions whichever is higher.
  • Consultancy services from abroad- $ 1 million per project to $ 10 million per project (for infrastructure project) $ 1 million in all other cases.
  • Reimbursement of Pre-incorporation’s expenses - $ 100,000 or 5 % of the FDI whichever is higher,
  • Payment towards purchase /use of Trademark - Allowed without any approval of RBI
  • Payment of importation on a CIF basis by a public sector unit or a government agency only for importation through ocean transport.
  • Technical collaboration agreement Remittance of royalty & payment of a lump-sum fee - Freely allow without RBI approval.
  • Remittance for Medical treatment outside India when a person has fallen sick after proceeding abroad- $ 1,00,000 (basis of self-declarations)
  • Small Value Remittance- Up to $ 25000
  • Prize money/sponsorship of any sports activity outside India by an individual other than national/international/street level sports bodies, if the prize money/sponsorship exceeds $1,000,000 US dollars.
  • Multi-model transport operators' remittances to their overseas agents.
  • Abroad Business Travel - $ 25000 per visit respective of stay
  • specialized training or conference Attending - $ 25000
  • For Medical treatment- $ 1,00,000
  • Maintenance of a patient going for a medical check-up or medical treatment abroad- $ 25000
  • Reimbursement of transponder rental fees.
  • Internet Service Providers (ISPs),
  • TV Channels.
  • Remittance for membership in the P&I Club ministry.
  • Meeting the expenses of a person accompanying as attendance to a patient going medical check-up or for medical treatment abroad- $ 25000
  • For Studying in Abroad- $ 1,00,000 per academic Year or Estimation Foreign Institution’s whichever is higher.

Penalties under (FEMA)

If an individual violates the provisions of FEMA or any law, direction, regulation, order, or notification given under FEMA, he may be fined up to thrice the amount involved in the violation or Rs.2 lakh. If the contravention continues, he will be subject to a further penalty of up to Rs.5,000 for each day the contravention continues. Further addition penalty, any money or any property or any currency, or security involved in the contravention may also be confiscated.

What  India Expert Offers

India Expert offers Consultancy in Foreign Exchange Management Act, RBI, and Foreign Collaboration services to aspirants who want to take advantage of global opportunities. We've established ourselves as a dependable FEMA Consultant based in India. Our services are available at competitive prices. We include Foreign Exchange Management Act Consultancy, which covers the full range of foreign exchange law:

  • Consultancy - On implications of various provisions of the Foreign Exchange Management Act, 1999 (FEMA).
  • Planning - To plan the matters/transactions/projects/agreements involving FEMA
  • Collaborations In/ Outside India - Requirements of FEMA and its compliance
  • Investments Outside India (Overseas Investments) - Requirements of FEMA and its compliance
  • Investments By Foreign Enterprises, Foreign Residents in India (FDI) - FEMA law procedures and their compliance-related matters & consultancy
  • Non-Resident Indians (NRI)/Persons of Indian origin (PIO)Privileges and obligations under FEMA related matters & consultancy
  • Statutory Compliances As per Requirements of FEMA and their compliance
  • Taxation - Of foreign enterprises, opinion, consultancy and compliance
  • International Transactions covered under FEMA - Implications of Transfer pricing law and Double Taxation Agreements(DTA)
  • Opening of Liaison offices, Project office & Branch office in India- Law, procedure and compliance
  • Professional services for obtaining Import - Export Code ( IEC ) from DGFT
  • FIPB (Foreign Investment Promotion Board) - Foreign collaboration agreement with various types of government approvals including Professional services in the field of obtaining FIPB approval for FDI
  • External Commercial Borrowings( ECB) - Law Procedures and Compliance related matters & consultancy
  • Investment in Real Estate Sector through FDI and investment by NRI/ PIO in Real Estate sector - Law procedure and compliance
  • Residential status of Individuals - Law, procedure and compliance
  • Reserve bank Of India - Professional services in the field of obtaining permission under various provisions of FEMA, Filing of Intimations, Statutory Forms & Returns
  • Statutory Compliances As per Requirements of FEMA and their compliance
  • Taxation - Of foreign enterprises, opinion, consultancy and compliance
  • International Transactions covered under FEMA - Implications of Transfer pricing law and Double Taxation Agreements(DTA)
  • Opening of Liaison office, Project office & Branch office in India- Law, procedure and compliance
  • Professional services for obtaining Import - Export Code ( IEC ) from DGFT

For any information/queries, you can contact us. Our team of experts can provide all the assistance related to Foreign Exchange. For Contact:

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