FEMA LAW

The Foreign Exchange Management Act (FEMA) is a law in India that regulates and facilitates foreign exchange transactions.

Objectives of FEMA:

• Regulate Foreign Exchange: FEMA regulates foreign exchange transactions to maintain stability in the foreign exchange market.
• Facilitate External Trade: FEMA facilitates external trade and commerce by simplifying foreign exchange transactions.
• Promote Economic Development: FEMA promotes economic development by allowing foreign investment and facilitating international trade.

Key Provisions of FEMA:

• Definition of Foreign Exchange: Includes foreign currency, foreign securities, and other foreign financial instruments.
• Regulation of Foreign Exchange Transactions: Covers buying and selling of foreign currency, and investment in foreign securities.
• Authorization of Dealers: Authorizes banks and financial institutions to deal in foreign exchange.
• Restrictions on Foreign Exchange Transactions: Imposes limits on the amount of foreign exchange that can be purchased or sold.

Penalties and Prosecution:

• Penalties: Imposes fines and imprisonment for contravention of FEMA provisions.
• Prosecution: Provides for legal action against offenders, including directors, officers, and employees of companies.

Amendments and Updates:

• FEMA (Amendment) Act, 2015: Introduced a new definition of "foreign exchange" and authorized RBI to regulate foreign exchange transactions.
• FEMA Regulations: Issued by the RBI, covering foreign exchange transactions, investment in foreign securities, and external commercial borrowing.

Compliance under FEMA:

• Registration with RBI: Companies and individuals dealing in foreign exchange must register with the RBI.
• Maintenance of Records: Must maintain records of foreign exchange transactions, including receipts and payments.
• Reporting Requirements: Must comply with reporting obligations, including filing returns with the RBI.