Foreign exchange management act
                     F O R E I G N  
E X C H A N G E  
M A N A G E M E N T  A C T
Introduction
• The Central Government of India 
formulated an act to encourage 
external payments and across the 
border trades in India known as the 
Foreign Exchange Management Act. 
• FEMA (Foreign Exchange 
Management Act) was introduced in 
the year 1999 to replace an earlier 
act FERA (Foreign Exchange 
Regulation Act).
Source: cleartax.in
FEMA
• FEMA was formulated to fill all the 
loopholes and drawback of FERA 
(Foreign Exchange Regulation Act) 
and hence several economic reforms 
(major reforms) were introduced 
under the FEMA act. 
• FEMA was basically introduced to de-
regularize and have a liberal 
economy in India.
Source: cleartax.in
OBJECTIVES OF FEMA
Facilitate external 
trade and 
payments
• The main objective for which FEMA 
was introduced in India was to 
facilitate external trade and 
payments. 
• In addition to this, FEMA was also 
formulated to assist orderly 
development and maintenance of 
the Indian forex market.
Source: cleartax.in
Dealings of foreign 
exchange 
transactions
• FEMA outlines the formalities and 
procedures for the dealings of all 
foreign exchange transactions in 
India. 
• These foreign exchange transactions 
have been classified into two 
categories — Capital Account 
Transactions and Current Account 
Transactions.
Source: cleartax.in
Balance of 
payment
• Under the FEMA Act, the balance of 
payment is the record of dealings 
between the citizen of different 
countries in goods, services and 
assets. 
• It is mainly divided into two 
categories, i.e. Capital Account and 
Current Account.
Source: cleartax.in
Applicability of 
FEMA Act
• FEMA (Foreign Exchange 
Management Act) is applicable to 
the whole of India and equally 
applicable to the agencies and 
offices located outside India (which 
are owned or managed by an Indian 
Citizen).
Source: cleartax.in
Applicability of 
FEMA Act cont.
• FEMA is applicable to:
• Foreign exchange.
• Foreign security.
• Exportation of any commodity 
and/or service from India to a 
country outside India.
• Importation of any commodity 
and/or services from outside India.
• Securities as defined under Public 
Debt Act 1994.
• Purchase, sale and exchange of any 
kind (i.e. Transfer).
• Banking, financial and insurance 
services.
Source: cleartax.in
Category of FEMA
• Transactions prohibited by FEMA,
• The transaction requires Central 
Government’s permission,
• The transaction requires RBI’s 
permission.
Source: cleartax.in
Prohibition on 
Foreign Exchange
• Any kind of remittance out of 
winning the lottery.
• Any kind of remittance from the 
income on racing/riding etc.
• Any remittance for buying of a 
lottery ticket, football pools, 
sweepstakes, banned/prescribed 
magazines etc.
Source: cleartax.in
Prohibition on 
Foreign Exchange 
cont.
• Commission payment on exports 
towards equity investment of Indian 
Companies in Joint ventures/wholly 
owned subsidiaries abroad.
• Remittance of dividend by any 
company. However, this clause is 
applicable only if the requirement of 
dividend balancing is applicable.
• Commission payment on exportation 
under Rupees State Credit Routes 
except commission up to 10% of 
invoice value of export of tea and 
tobacco.
Source: cleartax.in