FEMA Full Form

 FEMA is known as the Foreign Exchange Management Act. This act came in 1999. This act is to merge and correct the law relating to foreign exchange. The purpose of this foreign exchange act is to facilitate external trade, payment, and maintenance of foreign exchange in the market. 

 Roles of FEMA: 

 The main purpose of FEMA is to ease external trade. Its ongoing process followed by provision relating to procedures, formalities of a foreign exchange transactions in India. It (FEMA) is categorized into two parts: 

  • Current account transaction 

  • Capital account transaction 

FEMA is applicable across India and its agencies are spread across the world.    

Difference Between Current Account Transaction and Capital Transaction:

The current account depicts a country’s net income, while a capital account tracks the net change of assets and liabilities in a specific year. Current accounts allocate with the receipt and cash payments and non-capital items whereas capital account deals in sources and makes use of capital. The addition of the current account and capital account depicts in the payment balance will always be zero. It deals (current account) with short term transactions while the capital account records inward and outward which directly determines a country's assets and liabilities. It includes foreign investment banking, loans, and other forms of capital. 

Highlights on FEMA: 

  • It bars foreign exchange dealings which take place other than the authorized persons. 

  • In FEMA rules, there are seven types of current account transactions that are prohibited. It includes transactions like lotteries, football pools, etc. 

  • FEMA rules provide the freedom to ROI (Resident of India) to hold, own, or transfer any kind of foreign commodity. 

FEMA Vs. FERA : 

FEMA (Foreign exchange management act) originated in 1999 whereas FERA (Foreign Exchange Regulation act) is an older version that came much before FEMA i.e. in 1973. FEMA holds responsibility for foreign exchange i.e. forex while FERA deals in currencies part. FERA has a rigid approach towards forex transactions, on the other hand, FERA has flexibility. In case of violating rules, FEMA has imprisonment while FERA has a fine or imprisonment too (in case a fine has not been made on time).

Objectives of FEMA: 

The main objective of FEMA is to provide foreign trade to boost up development and maintenance of the forex market in the country. This act consists of seven chapters which are divided into 49 sections, out of which 12 sections deal with the operational part and the remaining other 37 sections take care of penalties, appeals, and so on. 

Features of FEMA : 

  • Some activities such as any payments made to any person outside of India or any deals in foreign exchange is prohibited. 

  • It deals in foreign exchange under the current account through an authorized person can be prohibited by the central government.

  • Residents of India are authorized to carry out transactions in foreign exchange, or to hold any fixed property out of India if the property, security or currency was owned when he/she is living outside of India.

Major Provisions enclosed in FEMA:

The provisions of FEMA, 1999 are as follows-

  • Trading in foreign exchange, etc. 

  • Current account transactions 

  • Trading (export of goods and services) 

  • RBI to inspect authorized persons. 

FAQ (Frequently Asked Questions)

1. What is the Full Form of FEMA?

Ans: FEMA is known for its foreign Exchange Management Act, came into presence in 1999.

2. What are the Features of FEMA?

Ans: Some activities such as any payments made to any person outside of India or any deals in foreign exchange is prohibited. 

It deals in foreign exchange under the current account through an authorized person can be prohibited by the central Government.

3. What is the difference between FEMA vs FERA?

Ans: FEMA (Foreign exchange management act) originated in 1999 whereas FERA ( Foreign Exchange Regulation act) is an older version of came much before FEMA i.e. in 1973. FEMA holds responsibility for foreign exchange i.e. forex while FERA deals into currencies part.