foreign exchange management act

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foreign exchange management act and its provisions difference between fema and fera

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FEMA 1999:

FEMA 1999 In India, Foreign trade was regulated by a)The Foreign trade (Development and Regulation) Act, 1992 which replaced the Imports and exports(Control) Act, 1947 b) Foreign Exchange Regulations Act 1973. With the liberlaisation and globalisation , the outlook changed. Now it is the question of management and not regulation. However, certain activities are still being regulated in the interest of sovereignty of the nation. 1

FEMA 1999:

FEMA 1999 FEMA Act 1999 came in the backdrop of the stringent regulatory provisions of FERA which were described as draconian and obnoxious in the wake of economic liberalisation . FERA served the country to tide over the foreign exchange crisis and the controlled economic regime. Then, conservation and proper utilisation of foreign exchange was the motto. FEMA came into effect from Jan 1,2000 extends to the whole of India and applies to all branches, offices, and agencies outside India, owned or controlled by a person resident in India. 2

FEMA:

FEMA FEMA 1999 has repealed the FERA 1973. FEMA came into force from 1 st June 2000 FEMA is liberal with the objective of facilitating external trade and payments and promoting orderly development and maintenance of foreign exchange market in India. The act applies to the whole of India and also to branches, offices and agencies outside India owned or controlled by a person resident in India. It also applies to any contravention committed outside India by any person to whom this Act applies. 3

FEMA 1999:

FEMA 1999 Objectives of FEMA: Facilitating external trade and payments Promoting the orderly development and maintenance of foreign exchange market FEMA deals with both Current Account and Capital Account Transactions of the BOP Sec 3 of the FEMA imposes restrictions on dealings in foreign exchange and foreign securities and payments to and receipts from any person outside India. The Act provides certain conditions. 4

FERA and FEMA Compared:

FERA and FEMA Compared FERA Regulatory in nature; preventing misuse; control regime. Lengthy Act with 81 sections Stipulations were rigid which included imprisonment Many conditions were imposed in the export/import, blocked accounts, movement of human resources FEMA Management, Facilitating trade and payments, and flow of exchange; economic liberalisation Smaller enactment with 49 sections Rigidity is withdrawn. Penalty and no imprisonment. Now the conditions are highly liberal and provides a congenial climate for export /import of goods, services, human capital etc 5

FEMA:

FEMA Important Definitions under the Act: Adjudicating authority: Central Government has powers to appoint as many adjudicating authorities as it thinks fit for the purposes of enquiry. Adjudicating authority can hold enquiry on receiving a complaint from an authorised officer. He shall endeavour to dispose off the complaint in one year and if not record the reasons Authorised Person: Authorised person means an anuthorised dealer, moneychanger, off-shore banking unit or any other person for the time being authorised by RBI to deal in foreign exchange or foreign securities 6

FEMA:

FEMA Important Definitions under the Act: Capital Account Transaction: It means—a) a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India OR b)assets and liabilities in India of persons resident outside India OR c) Prohibitions as per Sec 6(3) (RBI may regulate or restrict certain transactions Currency: Currency includes all: a) currency notes; b) Postal Notes; c) Postal Orders; d) Money Orders; e) Cheques ; f) Travellers’ cheques ; g) Letters of Credit; h) Bills of Exchange and promissory notes and i ) Credit Cards. It also includes which the RBI may notify from time to time 7

FEMA:

FEMA Current Account Transactions: it means a transaction other than the capital transaction. It includes—a) payments in connections with foreign trade, other current business, services, and short term banking and credit facilities in the ordinary course of business; b) payments due as interest on loans and as net income from investments; c) remittances for living expenses of parents, spouse and children residing abroad; d) expenses in connection with foreign travel, education, medical care of parents, spouse and children. Export: --a) taking out of India to a place outside India any goods; b) Provision of services from India to any person outside India; Foreign Currency—Means currency other than Indian Curency 8

FEMA:

FEMA Foreign Exchange: It means foreign currency and includes—a) deposits, credits and balances payable in any foreign currency; b)drafts, traveller’s cheques , letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency; c) drafts, travellers’ cheques , letters of credit or bills of exchange drawn by banks, institutions or persons outside India but payable in Indian currency Foreign Security: Securities denominated or expressed in foreign currency Import: Bringing into India any goods or services 9

FEMA:

FEMA Resident: 182 days except where outside India stay for taking up employment, or carrying out business or for permanent settlement or where the stay in India is uncertain. Non-resident: Not satisfying the Resident definition Repatriation: Crossing the foreign exchange into India from other countries or sending from India outside India Security: Shares, stocks, Bonds and Debentures, Government securities (Public Debts), Savings Certificates of the Government, deposit receipts and units of Unit Trust of India or any Mutual Fund but it does not include the Bills of Exchange or Promissory notes other than the Government Promissory Notes or other securities notified by the RBI 10

FEMA:

FEMA Service: Service of any description which is made available to potential users. It also includes the provision of facilities in connection with banking, financing, insurance, medical assistance, legal assistance, chit fund, real estate, transport, processing, supply of electrical or other energy, boarding or lodging or both, entertainment, amusement or the purveying of news or other information. (Exception—personal service rendered free of charge) 11

FEMA:

FEMA Salient features of FEMA: All receipts and payments shall be through authorised persons (RBI is authority to decide about authorised persons) Holding of Foreign Exchange:-A resident in India cannot acquire, hold , own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.(except where specifically permitted) Current Account Transaction: Any person is free to sell or buy foreign exchange to or from an authorised person for a current account transaction. Capital Account Transaction:-Any person is free to sell or buy foreign exchange to or from an authorised person for a capital transaction with certain exceptions ( RBI can fix up limits or the class of transaction which are permissible or not) 12

Current Account transactions:

Current Account transactions Any person may sell or draw any foreign exchange to or from an authorised person if such sale or drawal is a current account transactions. As of now, all current account transactions are free subject to reasonable restrictions by Central Government in consultation with RBI (in public interest). Central Government has made Foreign Exchange Management (Current Account) Transactions Rules, 2000 which provides for prohibitions. Current account transactions are free subject to the above rules amended from time to time. 13

Current Account transactions:

Current Account transactions Prohibited List: Certain remittances are prohibited even if they are current account transactions Transactions with Nepal/Bhutan: a) Drawal of Foreign Exchange for travel to Nepal or Bhutan not permitted; b) Transaction with a resident in Nepal or Bhutan cannot be made in foreign currency except when permitted by RBI. Commission on Exports to JVs or wholly owned subsidiaries abroad of Indian companies not permitted Call Back charges: In a call back system, the party receiving the telephone call makes payment of telephone charges. NOT PERMITTED. Lotteries/Races: a) Remittance out of lottery winnings; b) Remittance of income from racing.riding etc; c) remittance for purchase of lottery tickets, banned magazines ec0 Lottery tickets/money circulation schemes 14

Current Account transactions:

Current Account transactions Prior Approval of Government: The following transactions require prior approval of the Central government: Cultural tours Advertisement by Public sector undertakings/Governments Chartered vessel by public sector undertaking/Government Payment of Import on CIF basis by Public sector undertaking /Government through ocean transport Agents of Multi Modal transport Hire charges of Transponders Container detention charges beyond prescribed limits Prize money for sports 15

Current Account transactions:

Current Account transactions Transactions requiring prior approval of RBI: Release of Foreign Exchange exceeding USD10000 or its equivalent in a calendar year for one more private visits abroad (other than Nepal and Bhutan) Release of F/X exceeding USD 25000 or its equivalent in a calendar year for business travel, attending conference and specialised training Release of F/X exceeding USD 1 lakh or its equivalent for persons going abroad for employment Gift remittance to family members and relatives exceeding USD 5000 of its equivalent per remitter/donor per annum Donations exceeding USD 5000 or its equivalent per remitter/donor per annum 16

Current Account transactions:

Current Account transactions Transactions requiring prior approval of RBI: Release of F/X for meeting expenses for medical treatment abraod upto USD 1 lakh or its equivalent without insisting on any estimate from the hospital or doctor Release of F/X for studies abroad exceeding the estimates from the institution abroad or USD 1 lakh per academic year whichever is higher. Commission per transaction to agents abroad for sale of residential flats/commercial plots in India exceeding the limit of USD 25000 or 5 % of the inward remittances per transaction, whichever is higher. Remittance exceeding USD 1 million per project for any consultancy services procured from abroad Remittance exceeding USD 1 lakh by an entity in India by way of re-imbursement of pre-incorporation expenses. 17

PowerPoint Presentation:

Capital Account Transactions - Compliances - Permissible Transactions by Persons resident outside India. Prohibition on Investment Outside India of Capital Account Transaction, 18

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