Indian Foreign Exchange Management Act FEMA www.deekpay.com

India Foreign Exchange Management Act FEMA India Foreign Exchange Management Act FEMA

Indian Foreign Exchange Management Billelement

The Central Government of India has enacted an Act to encourage external payments and cross-border trade in India, namely the Foreign Exchange Management Bill. The Foreign Exchange Management Bill was introduced in 1999 to replace the previous Foreign Exchange Management Bill. The Foreign Exchange Management Bill was enacted to cover all the loopholes and shortcomings of the Foreign Exchange Management Bill and hence several economic reforms (major reforms) were introduced under the Foreign Exchange Management Bill. The Foreign Exchange Management Act was basically introduced to deregulate and create a free economy in India.

Objectives of the Indian Foreign Exchange Management Bill

The main objective of the Foreign Exchange Management Bill in India is to facilitate foreign trade and payments. Apart from this, the Foreign Exchange Management Bill has been enacted to assist in the orderly development and maintenance of the foreign exchange market in India.

The Foreign Exchange Management Bill outlines the formalities and procedures for all foreign exchange transactions in India. These foreign exchange transactions are categorised into two types - capital account transactions andcurrent account (in bank)Transactions.

According to the FEMA Act, the Balance of Payments (BOP) records transactions in goods, services and assets between citizens of different countries. It is divided into two main categories, namely the capital account and the current account.

The capital account includes all capital transactions, while the current account includes merchandise trade. Current account transactions are those that result in flows of funds into and out of the country/countries as a result of transactions/provision of goods, services and income during the year.

The current account is an indicator of the state of the economy. As noted above, the balance of payments comprises the current account and the capital account, and the remainder of the balance of payments is the capital account, which includes capital flows in the economy as a result of the capital balance. The capital account recognises domestic investment in foreign assets and foreign investment in the country.

Read more:What is a current bank account in India?

Scope of Application of the FEMA Act

FEMA (Foreign Exchange Management Act) applies to the whole of India and also applies to organisations and offices (owned or managed by Indian citizens) located outside India.FEMA is headquartered in New Delhi and is known as the Enforcement Directorate.FEMA applies:

Foreign exchange. Foreign securities. Export of any goods and/or services from India to a country outside India. Import of any goods and/or services from outside India. Securities as defined under the Public Debt Act, 1994. Purchases, sales and exchanges (i.e., transfers) of any kind. Banking, financial and insurance services. By NRI(Non-Resident Indian) Any Overseas Company which is owned and whose owners have shares of 60% or more. Any Indian citizen (NRI) residing in India or abroad.

Recommended Reading:What are NRI accounts in India?

Under the FEMA Act, current account transactions are classified into three categories, viz:

FEMA Prohibited Transactions. Transactions that require a licence from the central government. RequiredReserve Bank of IndiaLicensed transactions.

India Prohibition of Foreign Exchange Withdrawal Clause

Any form of remittance of lottery winnings. Any form of remittance of horse racing/riding earnings. Any remittance for the purchase of lottery tickets, football tickets, raffles, banned books/prescription magazines, etc.,. Export commission on equity investment by an Indian company in a joint venture/wholly owned subsidiary abroad. Remittance of dividend by any company. However, this clause is applicable only when the dividend equalisation requirement is applicable. Commission on exports under the Rupee State Credit Route, except commission on exports of tea and tobacco to the invoice value of 10%. Payment in respect of telephone "call back service". Travelling to Bhutan and/or Nepal. Remittance of interest income on funds held in NRSR accounts (i.e. Non-Resident Special Rupee Scheme (NRSRS) accounts). Transactions with residents of Bhutan or Nepal.

Ways to withdraw foreign exchange in India

Foreign exchange can be withdrawn from any authorised dealer through the prior approval route or the general permission route as per the Reserve Bank of India.

No. Item Limitations1Private visit to any country (other than Bhutan and Nepal) One or more private visits in a year US$ 10,000 or equivalent2Donation/gift from each donor not to exceed US$ 1,25,000 in remittance in a financial year3Corporate donation of 11 TP3T of foreign exchange earnings of the previous three financial years or US$ 5 million (whichever is lower) for specified Purpose4 Departure from India for the purpose of employment $1,00,000 One time only5 Migration Remittance Facility $1,00,000 or such amount as may be prescribed by the country of emigration not exceeding $1,00,000 at a time6 Alimony Remittance from relatives (next of kin only) outside India Salary (after deduction of Income Tax, Provident Fund, and other deductions) from a non-Permanent Resident of India and a foreign national other than a Pakistani. OR In all other cases, US$1,00,000 per beneficiary per year 7 Business travel abroad US$25,000 per trip (including accommodation) 8 Attendance at specialised training or conferences US$25,000 9 For medical treatment US$1,00,000 10 Maintenance of a patient for medical check-ups or medical treatment abroad US$25,000 11 Study abroad US$1,00,000 or the institution's estimate for each academic year. whichever is higher 12 Payment of expenses to accompany patients for medical examination or medical treatment abroad $25,000 13 Payment of commission on sale of commercial or residential land or flats in India to agents outside India $25,000 per transaction or 5% of inward remittance, whichever is higher 14 Consultancy services from abroad $1,000,000 per project to $10,000,000 per project ( Infrastructure projects) $1 million in all other cases15 Reimbursement of pre-incorporation expenses of $100,000 or 51 TP3T for entry into India for investment, whichever is higher16 Remittances for purchase and/or use of trademarks are permissible without approval of the Reserve Bank of India17 Remittances for purchase of health insurance from a foreign company are freely permissible18 Payment of royalty and one-time fees under a technical co-operation agreement is not subject to RBI approval Royalties and one-time charges are freely permitted without prior approval of RBI19 Exemption from medical exchange outside India when a person falls sick after travelling abroad Amounts up to USD 1,00,000 as per self-declaration without any hassle and without wasting any time20 Small remittances up to USD 25,000

Recommended Reading:Reserve Bank of India RBI

Transactions that require prior approval from the central government to withdraw foreign currency:

Cultural tourism. The state government and its public sector units place advertisements in foreign print media for any purpose other than the promotion of tourism, international tenders and foreign investment (over $10,000). The public sector unit or government department pays for the cost of importation only on a c.i.f. basis for imports made by ocean freight. Remittance of charter freight. Remittance of container demurrage charges in excess of the rates set by DGS (Director General of Shipping). Remittance of prize money/sponsorship of any sporting event outside India by persons other than National/International/Street Sports Organisations if the amount of prize money/sponsorship exceeds USD 1,00,000. Remittance of transponder hire charges. Internet service providers. Television channels. P&I Club membership fee remittance. Remittances from multimodal transport operators to their overseas agents.

Penalties under the Federal Emergency Management Agency (FEMA)

If any person contravenes the provisions of the Federal Emergency Management Agency (FEMA) or any rule, directive, regulation, order or notification issued under FEMA, he shall be liable to a fine which shall not exceed three times the amount involved in the offence or a maximum of Rs. 200,000 per day. If the offence persists, he shall be liable to a further fine up to Rs. 5,000 per day for the duration of the offence.

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