What is the ED FEMA act?

The ED FEMA Act refers to the role of the Enforcement Directorate under the Foreign Exchange Management Act, which helps enforce rules about foreign exchange transactions in India.

What is the FEMA rule in India?

FEMA, or the Foreign Exchange Management Act, regulates how foreign exchange and investments are handled in India, making it easier to manage external trade and financial transactions.

What is the FEMA Act 1991?

There might be a mix-up here. The FEMA Act was actually introduced in 1999, not 1991. It controls foreign exchange transactions and investment in India.

Which act did the FEMA replace in 1999?

FEMA replaced the Foreign Exchange Regulation Act (FERA) of 1973 in 1999.

What is FEMA? - Foreign Exchange Management Act

The full form of FEMA is the Foreign Exchange Management Act. This is a law introduced by the Government of India in 1999. The FEMA regulation is designed to oversee and regulate the flow of foreign currency, making sure that trading and investments involving foreign exchange are conducted smoothly and responsibly. The FEMA Act, 1999 aims to ensure that the Indian economy remains stable and benefits from international financial activities.

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What is the FEMA Act 1999?

The FEMA Act, 1999, or the Foreign Exchange Management Act, is an Indian law designed to simplify and manage foreign exchange transactions. It replaced the earlier Foreign Exchange Regulation Act (FERA) to make it easier for businesses and individuals to deal with foreign exchange, support international trade, and maintain a stable foreign exchange market in India.

Objectives of FEMA Regulation

The key objectives of the Foreign Exchange Management Act, 1999 are listed below:

Purpose of FEMA: It helps manage foreign trade and payments while supporting the growth of India’s forex market.
Foreign Exchange Transactions: They’re divided into Capital and Current Account Transactions.
Balance of Payment: It tracks transactions between countries involving goods, services, and assets.
Capital Account: Covers investments and transactions involving capital, both domestic and foreign.
Current Account: Deals with trade and income flows, reflecting the health of the economy.
Capital Account Role: Tracks how capital moves in and out of the economy through investments and other capital activities.

Key Features of FEMA Act, 1999

The following points list the key features of the Foreign Exchange Management Act:

Regulation of Payments: The Central Government can control payments to and from people outside India.
Approval Requirement: You need FEMA's approval for financial transactions involving foreign securities or exchange, and these must be done through "Authorized Persons."
Public Interest Restrictions: The Government can limit foreign exchange deals on the current account to protect public interest.
RBI Authority: The RBI can restrict capital account transactions, even if done by authorized individuals.
Permissions for Residents: Indians living in India can handle foreign exchange and securities or own property abroad if they acquired it while living outside India or inherited it from someone abroad.

Authorised Persons under the FEMA Act

The following table shows the categories of Authorised Persons in detail with specific roles and permissions under the FEMA Act:

Category	Description
Authorized Dealer Category-I (AD Cat-I)	- Comprises commercial banks and state cooperative banks. - They are permitted to handle all types of foreign exchange transactions, including trade-related, non-trade-related, and investment-related transactions.
Authorized Dealer Category-II (AD Cat-II)	- Includes urban cooperative banks, regional rural banks, and other entities as notified by the Reserve Bank of India (RBI). - They are authorized to undertake a limited set of current and capital account transactions.
Authorized Dealer Category-III (AD Cat-III)	- Encompasses select non-banking financial companies (NBFCs) and money changers. - They are authorized to offer specific foreign exchange services like the issuance of forex cards and travellers’ cheques.
Full-Fledged Money Changers (FFMC)	- Entities such as standalone money changers and franchisees. - They are authorized by the RBI to buy and sell foreign exchange for specified purposes such as travel, education, and medical expenses.

Scope of the FEMA Act

The Foreign Exchange Management Act is applicable to the following entities:

Scope of FEMA: Applies across India and to Indian-owned or managed entities abroad.
Head Office: Located in New Delhi, known as the Enforcement Directorate.
Areas Covered:
- Foreign exchange and foreign securities.
- Export and import of commodities and services.
- Securities under the Public Debt Act 1994.
- Purchase, sale, and exchange of assets.
- Banking, financial, and insurance services.
- Overseas companies owned 60% or more by NRIs.
- Indian citizens, whether residing in India or abroad (including NRIs).

Categorization of Current Account Transactions under FEMA Act, 1999

Current Account transactions under the FEMA Act are divided into three categories:

Transactions that are prohibited by FEMA
Transactions that need permission from the Central Government
Transactions that need approval from the RBI

You can learn about these categories from the following sections.

Restricted Foreign Exchange Transactions under FEMA

The following category of foreign exchange transactions are NOT allowed as per the FEMA Act, 1999:
- Lottery Winnings: Approval is needed to send money abroad from lottery winnings.
- Income from Racing or Riding: Remittances from earnings through these activities need approval.
- Buying Lottery Tickets and More: Sending money to buy lottery tickets, football pools, sweepstakes, or banned magazines requires approval.
- Commission on Export Investments: Paying commissions on exports for equity investments in foreign joint ventures or subsidiaries of Indian companies needs approval.
- Dividend Remittances: If dividend balancing is required, you need approval to remit dividends.
- Export Commissions under Rupee Credit Routes: Approval is required for paying commissions on exports under these routes, except for up to 10% commissions on tea and tobacco exports.
- "Call Back Services" for Telephones: Payments for these services require approval.
- Travel Expenses to Bhutan and Nepal: These expenses need approval.
- Interest Income from NRSR Accounts: Remitting interest income from Non-Resident Special Rupee Accounts needs approval.
- Transactions with Bhutan or Nepal Residents: Any transactions with residents of Bhutan or Nepal require approval.
Foreign Exchange Transactions Requiring RBI Permission

The Reserve Bank of India (RBI) allows withdrawals of foreign exchange from any authorized dealer through the Prior Approval Route or General Permission Route. The key details are as follows:
- Private Visits Abroad (excluding Bhutan and Nepal): You can take up to $10,000 per year for one or more trips.
- Donations and Gifts: You can give up to $125,000 per donor each financial year.
- Corporate Donations: Companies can donate up to 1% of their forex earnings from the past three years or $5 million, whichever is less.
- Employment Abroad: You can take out $100,000 just once for work abroad.
- Emigration: If you’re moving abroad, you can take up to $100,000 or the amount set by the new country, whichever is higher, just once.
- Supporting Close Relatives Abroad: You can send up to $100,000 per recipient per year, or cover the salary of someone living outside India.
- Business Travel Abroad: Up to $25,000 per trip.
- Training or Conferences: You can spend up to $25,000.
- Medical Treatment: Up to $100,000 is allowed.
- Supporting a Patient Abroad: Up to $25,000.
- Studying Abroad: Up to $100,000 per academic year, or the institution's estimate if it’s higher.
- Attendant for a Patient Abroad: Up to $25,000.
- Commission to Foreign Agents for Property Sales in India: Up to $25,000 or 5% of the transaction amount, whichever is higher.
- Consultancy Services from Abroad: Up to $1 million per project, or $10 million for infrastructure projects.
- Pre-incorporation Expenses: Up to $100,000 or 5% of the investment brought into India, whichever is higher.
- Trademark Purchase/Use: No RBI approval needed.
- Foreign Health Insurance: Allowed without restriction.
- Royalty and Technical Collaboration Payments: Allowed without prior RBI approval.
- Medical Treatment Abroad for Sickness: Up to $100,000 with self-declaration.
- Small Value Remittance: Up to $25,000 (using Form A2).
Foreign Exchange Transactions Requiring Central Government Permission

You will need prior approval from the Government of India for the following foreign exchange transactions:
- Cultural Tours: You need approval for these.
- Foreign Print Media Ads: If a state government or public sector unit wants to spend over $10,000 on ads (excluding tourism, international bidding, and foreign investments), they need approval.
- Public Sector Imports: Approval is required for import payments via ocean transport.
- Chartered Vessel Freight: You need approval to remit freight charges.
- Container Detention Fees: If the charges exceed the rates set by the Director General of Shipping, approval is needed.
- Sports Prize Money/Sponsorship: For amounts over $100,000 for activities outside India by individuals or non-sports bodies, approval is required.
- Hiring Transponders: Needs approval.
- Internet Service Providers: Require approval for remittances.
- TV Channels: Need approval for foreign exchange transactions.
- P&I Club Membership: Approval is needed for these remittances.
- Multi-Modal Transport Operators: Approval is required for remittances to their agents abroad.

Penalties under FEMA Act 1999

Under the FEMA Act 1999, if you violate any rules or regulations, you could face significant penalties. For example, you might be fined up to three times the amount involved in the violation or up to ₹2 lakh if the amount can't be determined. If the violation continues, you could be fined an extra ₹5,000 for each day it persists. Additionally, if you don't pay the fine, your property or currency involved in the violation could be confiscated.

Structure of FEMA Adjudication Authorities

The Head Office of FEMA, known as the Enforcement Directorate and headed by the Director, is located in New Delhi.

There are five zonal offices in Delhi, Mumbai, Kolkata, Chennai, and Jalandhar, each led by a Deputy Director.
Each zone is further divided into seven sub-zonal offices, managed by Assistant Directors.
Additionally, there are five field units overseen by Chief Enforcement Officers.

What is the FERA Act?

The Foreign Exchange Regulation Act (FERA) of 1973 controlled how foreign exchange was used in India. It had strict rules to manage foreign investments and currency movement to protect the country’s foreign reserves. Due to its rigid approach, it was replaced by the Foreign Exchange Management Act (FEMA) in 1999.

Difference Between FERA and FEMA Act

The following table shows the major differences between the FERA and FEMA Act:

Feature	FERA (Foreign Exchange Regulation Act)	FEMA (Foreign Exchange Management Act)
Year of Enactment	1973	1999
Objective	Regulate and restrict foreign exchange transactions	Facilitate external trade and payments, and promote orderly development of the foreign exchange market
Approach	Regulatory and restrictive	Management-oriented and liberalized
Nature	Criminal Law	Civil Law
Penalties	Severe penalties including imprisonment	Monetary penalties primarily, with imprisonment in extreme cases
Permissions	Stringent controls and permissions required	Liberalized and relaxed permissions
Foreign Investment	Limited and controlled	Encouraged and promoted
Applicability	Applied to all transactions involving foreign exchange	Applied to foreign exchange transactions, focusing on management and promotion

FAQs

What is the ED FEMA act?

The ED FEMA Act refers to the role of the Enforcement Directorate under the Foreign Exchange Management Act, which helps enforce rules about foreign exchange transactions in India.
What is the FEMA rule in India?

FEMA, or the Foreign Exchange Management Act, regulates how foreign exchange and investments are handled in India, making it easier to manage external trade and financial transactions.
What is the FEMA Act 1991?

There might be a mix-up here. The FEMA Act was actually introduced in 1999, not 1991. It controls foreign exchange transactions and investment in India.
Which act did the FEMA replace in 1999?

FEMA replaced the Foreign Exchange Regulation Act (FERA) of 1973 in 1999.

†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in

Past 10 Years' annualised returns as on 01-12-2024

^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.

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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

#The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CARG 8%; ₹50,45,591 @ CAGR 4%

¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.

**Returns are based on past 10 years’ fund performance data (Fund Data Source: Value Research).