FERA Final[1]

8/3/2019 FERA Final[1]

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Comparison of FERA & FEMA

Creative MembersShamin Jain-22

Nirmi Parikh-40Anjan Shah-49Pooja Shah-51


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I f 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 FERAWhy FERAObjectives of FERAFEMA

Structure of the FEMA ActCase study of FEMACurrent A/c TransactionCapital A/c TransactionProhibited Transactions

Transactions with CG ApprovalComparison 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 of the foreign exchange resource of the country and the proper utilization thereof in theinterests 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 thecountry were low, Forex being a scarce commodity.

FERA therefore proceeded on the presumption that all foreign exchange earned byIndian residents rightfully belonged to the Government of

India and had to becollected and surrendered to the Reserve bank of India (RB I).

FERA primarily prohibited all transactions, except ones permitted by RB I .


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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 economicdevelopment of the country.


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FOREIGN EXCHANGE

MANAGEMENT,1999[FEMAFEMA is an act to consolidate and among the law relatingto Foreign Exchange with the objective of facilitatingexternal trade and payments and for promoting the orderlydevelopment and maintenance of Foreign exchange marketin India.

Foreign Exchange Management Act or in short (FEMA) is anact that provides guidelines for the free flow of foreignexchange in India.


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The Objectives are as followsTo 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 theinterest of the economic development of the country.


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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 RB I is entrusted with the administrationand implementation of FEMA


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The FEMA act extends to the whole of I ndia.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


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Case study: Kites

Allegations:1. Used foreign exchange meant for production

work to meet personal expenses2. Carried junk film reels from India for the

shoot but used fresh reels bought in the US

3. Paid Spectrum Entertainment just $ 4.3million against pending bills of $ 5.9 million


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B ackground of case

Production budget of Rs. 60 croreSold for Rs. 110 crore in worldwide rights to

the Reliance GroupFilm shot in Maldives, Mexico and the USSpectrum Entertainment hired by Roshan to

manage all outdoor shoots of Kites in the USReels were bought in US and cost Roshan Rs.50 lakhs


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evaluation

1. The production house is gaining tax benefitsshowing personnel expenditure as creativeexpenses

2. Evaded duty on Reels, bought from US, whenreturned to India

3. Spectrum has all the challans of withdrawalsby Roshan


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conclusions

1. The personal expense, if proved, must onlyinvite minimal penalty of 3 times the dutyevaded

2. Spending of Rs. 50 lakhs in US is violation of FEMA and can invite penalty of upto 3 timesthe original amount applicable

3. The Spectrum matter will not be taken up bythe ED without a proper evaluation of thesituation between the complainant & the

Indian production house


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Rule 3 read with Schedule I:

Prohibited TransactionsPymt for travel to Nepal and/or B hutanRemittance out of income from :- lottery

winnings, or racing/riding etc., or any otherhobby;Remittance for purchase of :- lottery tickets, orbanned/ prescribed magazines, football pools,sweepstakes etc.Pymt of comm. on exports made towardsequity investment in JV abroad of IndianCompanies


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Rule 4 read with Schedule II:

Transactions with CG ApprovalPymt of imports by a Govt. Deptt. or a PSU onCIF basis

Cultural ToursRemittance of prize money/ sponsorship of sports activity abroad > US$ 1,00,000 (norestriction if pymt made by International/National/ State level Sports B odies)Pymt for health insurance from a companyabroad


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Rule 5 read with Schedule III:

(if beyond limits)


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Similarities between FERA & FEMA

The Reserve B ank of India and centralgovernment would continue to be theregulatory bodies.Presumption of extra territorial jurisdiction asenvisaged in section (1) of FERA has beenretained.The Directorate of Enforcement continues tobe the agency for enforcement of theprovisions of the law such as conducting

search and seizure


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Comparison FERA & FEMA

Differences FERA FEMA

Emphasis On regulation of foreignexchange

On management of foreignexchange

Situation Stringent controls wererequired on the use of foreignexchange

Stringent controls are notrequired now

Permission Need to take permission of R B I

in connection withremittances

No need for seeking the

permission of RB

I except incase of Section 3

Restrictions Restrictions on drawals of foreign exchange for thepurpose current accounttransactions

Section 5 removes allrestrictions on drawals of foreign exchange


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Comparison FERA & FEMADIFFERENCES FERA FEMA

PROVISIONS FERA consisted of 91 sections, and was morecomplex

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

COMPARE D 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.


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THANK YOU!!!

Documents

FERA Final[1]