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Comparison of FERA & FEMA

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If you learn only methods you will be tied to

your methods, but if you learn principles you

can device your own methods.

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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

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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 ofthe foreign exchange resource of the country and the proper utilization thereof in the

interests of the economic development of the country.

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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.

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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 ones permitted by RBI.

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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.

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MANAGEMENT,1999[FEM

A FEMA is an act to consolidate and among the

law relating to Foreign Exchange with theobjective of facilitating external trade and

payments and for promoting the orderlydevelopment and maintenance of Foreignexchange market in India.

Foreign Exchange Management Act or in short(FEMA) is an act that provides guidelines for thefree flow of foreign exchange in India.

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The Objectives are as follows To regulate impact and export of currency

To regulate acquisition holding etc .of immovable property inIndia by NRIs.

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 utilizethe same is the interest of the economic development of thecountry.

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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

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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 offoreign 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 Re atriation and Forei n Exchan e

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Case study: Kites

Allegations:

1.Used foreign exchange meant forproduction work to meet personalexpenses

2.Carried junk film reels from India forthe shoot but used fresh reels boughtin the US

3.Paid Spectrum Entertainment just $4.3 million against pending bills of $

5.9 million

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Background of case

Production budget of Rs. 60 crore

Sold for Rs. 110 crore in worldwiderights to the Reliance Group

Film shot in Maldives, Mexico and theUS

Spectrum Entertainment hired byRoshan to manage all outdoor shootsof Kites in the US

Reels were bought in US and costRoshan Rs. 50 lakhs

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evaluation

1. The production house is gaining taxbenefits showing personnelexpenditure as creative expenses

2. Evaded duty on Reels, bought fromUS, when returned to India

3. Spectrum has all the challans ofwithdrawals by Roshan

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conclusions

1. The personal expense, if proved,must only invite minimal penalty of3 times the duty evaded

2. Spending of Rs. 50 lakhs in US isviolation of FEMA and can invitepenalty of upto 3 times the original

amount applicable

3. The Spectrum matter will not betaken up by the ED without a proper

evaluation of the situation between

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Rule 3 read with Schedule I:Prohibited Transactions

Pymt for travel to Nepal and/orBhutan

Remittance out of income from :-lottery winnings, or racing/riding etc.,or any other hobby;

Remittance for purchase of :- lotterytickets, or banned/ prescribedmagazines, football pools,sweepstakes etc.

Pymt of comm. on exports made

u e rea t c e u e

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u e rea w t c e u e :Transactions with CG

Approval Pymt of imports by a Govt. Deptt. ora PSU on CIF basis

Cultural Tours

Remittance of prize money/sponsorship of sports activity abroad> US$ 1,00,000 (no restriction ifpymt made by International/National/ State level Sports Bodies)

Pymt for health insurance from a

company abroad

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Rule 5 read with Schedule III:(if beyond limits)

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Similarities between FERA &FEMA

The Reserve Bank of India andcentral government would continueto be the regulatory bodies.

Presumption of extra territorialjurisdiction as envisaged in section(1) of FERA has been retained.

The Directorate of Enforcementcontinues to be the agency forenforcement of the provisions of the

law such as conducting search and

Comparison FERA & FEMA

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Comparison FERA & FEMA

Differences FERA FEMA

Emphasis On regulation of foreignexchange

On management offoreign exchange

Situation Stringent controls wererequired on the use offoreign exchange

Stringent controls arenot required now

Permission Need to take permissionof RBI in connection withremittances

No need for seeking thepermission of RBI exceptin case of Section 3

Restrictions Restrictions on drawalsof foreign exchange forthe purpose current

account transactions

Section 5 removes allrestrictions on drawalsof foreign exchange

Comparison FERA & FEMA

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Comparison FERA & FEMADIFFERENCES FERA FEMA

PROVISIONS FERA consisted of 91 sections, and was

more complex

FEMA is much simple, and consist of only 49

sections.

FEATURES Presumption of negative intention

(Mens Rea ) and joining hands in

offence (abatement) existed in FERA

These presumptions of Mens Rea and abatement

have been excluded in FEMA

NEW TERMS IN

FEMA

Terms like Capital Account Transaction,

current Account Transaction, person,

service etc. were not defined in FERA.

Terms like Capital Account Transaction, current

account Transaction person, service etc., have been

defined in detail in FEMA.

DEFINITION OF

AUTHORIZED

PERSON

Definition of "Authorized Person" in

FERA was a narrow one ( 2(b)

The definition of Authorized person has been

widened to include banks, money changes, off shore

banking Units etc. (2 ( c )

MEANING OF

"RESIDENT"

AS COMPARED

WITH INCOME

TAX ACT.

There was a big difference in the

definition of "Resident", under FERA,

and Income Tax Act

The provision of FEMA, are in consistent with income

Tax Act, in respect to the definition of term "

Resident". Now the criteria of "In India for 182 days"

to make a person resident has been brought under

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.

C i FERA & FEMA

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Comparison FERA & FEMAPUNISHMENT Any offence under FERA, was a criminal

offence , punishable with imprisonment

as per code of criminal procedure, 1973

Here, the offence is considered to

be a civil offence only punishable

with some amount of money as a

penalty. Imprisonment is prescribed

only when one fails to pay the

penalty.

QUANTUM OF

PENALTY.

The monetary penalty payable under FERA,

was nearly the five times the amount

involved.

Under FEMA the quantum of penalty has

been considerably decreased to three

times the amount involved.

APPEAL An appeal against the order of "Adjudicating

office", before " Foreign Exchange Regulation

Appellate Board went before High Court

The appellate authority under FEMA is

the special Director ( Appeals) Appeal

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 OF

ASSISTANCE

DURING LEGAL

FERA did not contain any express provision

on the right of on impleaded person to take

legal assistance

FEMA expressly recognizes the right of

appellant to take assistance of legal

practitioner or chartered accountant (32)

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THANK YOU!!!