Comparison of FERA & FEMA

Creative Members
Shamin Jain-22
Nirmi Parikh-40
Anjan Shah-49
Pooja Shah-51
“If you learn only methods you will be tied to

your methods, but if you learn principles you

can device your own methods.”

 Agenda
• Introduction of FERA
• Why FERA
• Objectives of FERA
• FEMA
• Structure of the FEMA Act
• Case study of FEMA
• Current A/c Transaction
• Capital A/c Transaction
• Prohibited Transactions
• Transactions with CG Approval
• Comparison between FERA & FEMA
 FERA
FERA- AN ACT

To amend the law regulating certain payments, dealings in foreign exchange,

effecting foreign exchange and import and export of currency, for the conservation of
the foreign exchange resource of the country and the proper utilization thereof in the
interests of the economic development of the country.
 FERA
 Regulated in India by the Foreign Exchange Regulation Act (FERA),1973.

 Consisted of 91 sections.

 FERA Emphasized strict exchange control.

 Control everything that was specified, relating to foreign exchange

 Law violators were treated as criminal offenders.

 Aimed at minimizing dealings in foreign exchange and foreign securities.

 Why FERA?
 FERA was introduced at a time when foreign exchange (Forex) reserves of the
country were low, Forex being a scarce commodity.

 FERA therefore proceeded on the presumption that all foreign exchange earned by
Indian residents rightfully belonged to the Government of India and had to be
collected and surrendered to the Reserve bank of India (RBI).

 FERA primarily prohibited all transactions, except one’s permitted by RBI.

 Objectives
 To regulate certain payments.

 To regulate dealings in foreign exchange and securities.

 To regulate transactions, indirectly affecting foreign exchange.

 To regulate the import and export of currency.

 To conserve precious foreign exchange.

 The proper utilization of foreign exchange so as to promote the economic

development of the country.
 FOREIGN EXCHANGE
MANAGEMENT,1999[FEM
A
• FEMA is “an act to consolidate and among the law
relating to Foreign Exchange with the objective of
facilitating external trade and payments and for
promoting the orderly development and maintenance
of Foreign exchange market in India”.

• Foreign Exchange Management Act or in short (FEMA)

is an act that provides guidelines for the free flow of
foreign exchange in India.
 The Objectives are as follows
• To regulate impact and export of currency

• To regulate acquisition holding etc .of immovable property in

India by NRI’s.

• To regulate holding of property (immovable) outside India.

• To regulate certain payments.

• To regulate Foreign companies.

• To regulates dealing in FE and securities.

• To regulate the transactions indirectly affecting FE.

• To regulate employment of foreign nationals.

• To converse the FE resources of the country and to utilize the

same is the interest of the economic development of the country.
 STRUCTURE OF THE FEMA (ACT)

• FEMA has in all 49 sections of which 9

(section 1 to 9) are substantive and the rest are
procedural/administrative.

• Thus RBI is entrusted with the administration

and implementation of FEMA
The FEMA act extends to the whole of India.
The main provision of the Act are as follows:

Section 2: Clarity on several definitions and terms used in the context of

foreign exchange.

Section 3:Prohibits dealing in Foreign Exchange

Section 4 Holding of foreign Exchange

Section 5 Current account Transaction

Section 6 : Capital account Transaction

Section 7: Export of Goods and Services

Section 8 : Realisation of Repatriation and Foreign Exchange

 Case study: Kites
Allegations:
1.Used foreign exchange meant for production
work to meet personal expenses
2.Carried junk film reels from India for the shoot
but used fresh reels bought in the US
3.Paid Spectrum Entertainment just $ 4.3 million
against pending bills of $ 5.9 million
 Background of case
• Production budget of Rs. 60 crore
• Sold for Rs. 110 crore in worldwide rights to
the Reliance Group
• Film shot in Maldives, Mexico and the US
• Spectrum Entertainment hired by Roshan to
manage all outdoor shoots of Kites in the US
• Reels were bought in US and cost Roshan Rs.
50 lakhs
 evaluation
1. The production house is gaining tax
benefits showing personnel
expenditure as creative expenses
2. Evaded duty on Reels, bought from
US, when returned to India
3. Spectrum has all the challans of
withdrawals by Roshan
 conclusions
1. The personal expense, if proved, must only invite
minimal penalty of 3 times the duty evaded
2. Spending of Rs. 50 lakhs in US is violation of FEMA
and can invite penalty of upto 3 times the original
amount applicable
3. The Spectrum matter will not be taken up by the ED
without a proper evaluation of the situation between
the complainant & the Indian production house
Rule 3 read with Schedule I:
Prohibited Transactions
• Pymt for travel to Nepal and/or Bhutan
• Remittance out of income from :- lottery winnings,
or racing/riding etc., or any other hobby;
• Remittance for purchase of :- lottery tickets, or
banned/ prescribed magazines, football pools,
sweepstakes etc.
• Pymt of comm. on exports made towards equity
investment in JV abroad of Indian Companies
Rule 4 read with Schedule II:
Transactions with CG
Approval
• Pymt of imports by a Govt. Deptt. or a PSU
on CIF basis
• Cultural Tours
• Remittance of prize money/ sponsorship of
sports activity abroad > US$ 1,00,000 (no
restriction if pymt made by International
/National/ State level Sports Bodies)
• Pymt for health insurance from a company
abroad
Rule 5 read with Schedule III:
(if beyond limits)
Similarities between FERA &
FEMA
• The Reserve Bank of India and central government
would continue to be the regulatory bodies.
• Presumption of extra territorial jurisdiction as
envisaged in section (1) of FERA has been retained.
• The Directorate of Enforcement continues to be the
agency for enforcement of the provisions of the law
such as conducting search and seizure
 Comparison FERA & FEMA
Differences FERA FEMA

Emphasis On regulation of foreign On management of

exchange foreign exchange

Situation Stringent controls were Stringent controls are not

required on the use of required now
foreign exchange

Permission Need to take permission No need for seeking the

of RBI in connection with permission of RBI except
remittances in case of Section 3

Restrictions Restrictions on drawals of Section 5 removes all

foreign exchange for the restrictions on drawals of
purpose current account foreign exchange
transactions
 Comparison FERA & FEMA
DIFFERENCES FERA FEMA
PROVISIONS FERA consisted of 91 sections, and wasFEMA is much simple, and consist of only 49
more complex sections.

FEATURES Presumption of negative intentionThese presumptions of Mens Rea and abatement

(Mens Rea ) and joining hands inhave been excluded in FEMA
offence (abatement) existed in FERA

NEW TERMS INTerms like Capital Account Transaction,Terms like Capital Account Transaction, current
FEMA current Account Transaction, person,account Transaction person, service etc., have been
service etc. were not defined in FERA. defined in detail in FEMA.

DEFINITION OFDefinition of "Authorized Person" inThe definition of Authorized person has been
AUTHORIZED FERA was a narrow one ( 2(b) widened to include banks, money changes, off shore
PERSON banking Units etc. (2 ( c )

MEANING OFThere was a big difference in theThe provision of FEMA, are in consistent with income
"RESIDENT" ASdefinition of "Resident", under FERA,Tax Act, in respect to the definition of term "
COMPARED and Income Tax ActResident". Now the criteria of "In India for 182 days"
WITH INCOME to make a person resident has been brought under
TAX ACT. FEMA. Therefore a person who qualifies to be a non-
  resident under the income Tax Act, 1961 will also be
considered a non-resident for the purposes of
application of FEMA, but vice-a-versa may not hold
true.
 Comparison FERA & FEMA
PUNISHMENT Any offence under FERA, was a criminalHere, the offence is considered to
offence , punishable with imprisonmentbe a civil offence only punishable
as per code of criminal procedure, 1973 with some amount of money as a
penalty. Imprisonment is prescribed
only when one fails to pay the
penalty.

QUANTUM OFThe monetary penalty payable under FERA,Under FEMA the quantum of penalty has
PENALTY. was nearly the five times the amountbeen considerably decreased to three
involved. times the amount involved.

APPEAL An appeal against the order of "AdjudicatingThe appellate authority under FEMA is
office", before " Foreign Exchange Regulationthe special Director ( Appeals) Appeal
Appellate Board went before High Court against the order of Adjudicating
Authorities and special Director (appeals)
lies before "Appellate Tribunal for
Foreign Exchange." An appeal from an
order of Appellate Tribunal would lie to
the High Court. (sec 17,18,35)

RIGHT OFFERA did not contain any express provisionFEMA expressly recognizes the right of
ASSISTANCE on the right of on impleaded person to takeappellant to take assistance of legal
DURING LEGALlegal assistance practitioner or chartered accountant (32)
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