What is FEMA? Difference between FERA & FEMA

What is FEMA? Difference between FERA & FEMA

About FEMA

FEMA stands for Foreign Exchange Management Act which was introduced in the year 1999 and it acts as a replacement for the FERA (Foreign Exchange Regulation Act). FEMA was enforced on June 1, 2000. This Act aims to make all the offenses relating to foreign exchange from criminal to civil offenses. The main purpose behind the Foreign Exchange Control Act (1999) is to consolidate and amend the foreign exchange legislation with the aim of facilitating foreign trade and payments. FEMA was also formulated to maintain foreign exchange market in India and to promote the orderly development of the same. FEMA applies to all parts of India. The law also applies to all branches, offices, and agencies outside India owned or controlled by a person who is a resident of India.[1]

The FEMA headquarters, also known as the Enforcement Directorate, is located in New Delhi and is led by a director. The directorate is further divided into 5 solar offices in Delhi, Mumbai, Kolkata, Chennai, and Jalandhar and each office is led by a deputy director. Each of these zonesis further divided into 7 sub-zones whose offices are headed by the Assistant Directors and 5 field units headed by Chief Enforcement Officers.[2]

About FERA

FERA stands for Foreign Exchange Regulations Act which was passed in 1973. It imposed severe restrictions on the types of payments and foreign exchange and securities transactions, as well as on transactions that impacted the exchange, as well as the indirect import and export of currency. The goal behind FERA was to regulate payments and exchange. It also intended to conserve foreign exchange, better the use of the foreign exchange, in order to boost the country’s economic development.[3]

Features of FEMA

1. FEMA empowers the Central Government to initiate activities, such as making payments to a person outside the country or receiving money for it. In addition to this, foreign exchange, as well as foreign securities transactions, are also restricted by FEMA.

2. Transactions cannot be made without specific or general consent of FEMA from any foreign country to India which deals with foreign security or foreign exchange as well as payments made by such foreign countries. All transactions must be carried out by an individual who has been authorized to do so.

3. The Central Government may restrict an authorized individual from carrying out foreign exchange transactions within the current account, based on the general interest of the public.

4. Although the withdrawal or sale of foreign currency by an authorized person, FEMA law empowers the Reserve Bank of India to place a number of restrictions on the transactions of the capital account.

5. Under the statute, the residents of India have the right to conduct foreign security transactions and foreign exchange, or the right to own or own immovable property in a foreign country in the event that the security, property or currency is acquired or owned when the individual is based. outside the country, or when they inherit the property of another individual living outside the country.

6. The law does not apply to the resident (of an Indian citizen) living outside the country.[4]

Difference between FEMA and FEMA

1. FERA was compiled with 81 different and complex provisions, however, FEMA has only 48 simple sections.

2. The current account was not defined in FERA but was introduced in FEMA.

3. FEMA has a broader definition of “Authorized Person” and has also included banks in it.

4. Compatibility with IT was not handled by FERA at all. However, FEMA provides on IT.

5. Under FERA, his violation was a criminal offense that was changed to a civil offense at FEMA.

6. According to FERA, the appeal used to be sent to the Supreme Court. However, FEMA had a Special Director (Appeals) and a Special Court.

7. Under FERA, no assistance was extended to the accused. However, under section 32 of FEMA, the accused has the right to obtain assistance from a lawyer.

8. FERA was created with the main objective of conserving foreign exchange. However, FEMA was created with the main objective of managing foreign exchange.

9. The FERA has formulated with the premise that the exchange is a scarce resource and, therefore, must be protected and used with great care. However, the FEMA was formulated with the assumption that the exchange is an asset and must be managed properly.

10. Under FERA, only authorized resellers and money changers were defined as Authorized Persons; however, under FEMA, even offshore banking units were included in this definition.[5]

Applicability of FEMA

This law applies to all parts of India, i.e. to any transaction that takes place in India by any person residing in India at the time of the transaction. This also applies to all branches, offices, and agencies outside of India that are owned or controlled by a person residing in India. Any violation committed by these entities outside India is also covered under FEMA. Residential status is the most important factor in determining the appropriateness of the Act. The persons covered by the Act are persons residing in India, non-resident Indian (NRI), persons residing outside India, an overseas corporate body (OCB) and persons of Indian origin (PIO).[6]

An Indian company will always be considered as a resident of India whereas a foreign company will be treated as a resident of India only if the control and management of its affairs are situated wholly in India during the relevant tax year. A non-resident Indian (NRI) indicates a person residing outside of India who is a citizen of India or is a person of Indian origin. A Non-Resident Indian will be treated as a person resident in India if he returns to or stays in India, for taking up employment in India, or for carrying on in India, a business or vocation, or for any other purpose that would show his intention to stay in India for an uncertain period. Non-Resident Indian citizens and Persons of Indian Origin on temporary visits or stay in India without any intention to stay in India for an uncertain period will be treated as Non-Residents during their stay in India.[7]

Overseas corporate body means a corporation, partnership, corporation, and other proprietary entity owned directly or indirectly to the extent of at least 60% by non-resident Indians and includes trust abroad in which an interest of not less than sixty percent Indians residing directly or indirectly but irrevocably. By a person of Indian origin is meant a citizen of any country other than Bangladesh or Pakistan, if –

1. he had an Indian passport at any time, or

2. he or one of his parents or one of his grandparents was an Indian citizen by virtue of the Constitution of India or the Citizenship Act of 1955, or

3. the person is the spouse of an Indian citizen or a person referred to in subclause (a) or (b).

Another definition of PIO is that “person of Indian origin” means an individual (who is not a citizen of Afghanistan, Bangladesh, Bhutan, China, Iran, Nepal, Pakistan or Sri Lanka) who-

1. at any time holds the Indian passport; or

2. who or one of whose fathers or grandfather was an Indian citizen under the Constitution of India or the Citizenship Act, 1955 (57 of 1955)


FEMA does not see the exchange rate flow as an evil Act but works to factor it in to manage the exchange rate process. The goal is to manage the exchange rate more efficiently, rather than retain it. It applies general asset management rules to foreign exchange management and aims to optimize it instead of maximizing it. It promotes a more liberal form of economy.

Edited by Pushpamrita Roy

Approved & Published – Sakshi Raje 


[1] https://www.taxmann.com/blogpost/2000001711/what-is-fema-foreign-exchange-management-act.aspx.

[2] http://www.eximguru.com/exim/reserve-bank/fema.aspx.


[4] https://www.taxmann.com/blogpost/2000001712/what-are-the-main-features-of-fema-act-1999.aspx.




Ayush Pandia
My name is Ayush Pandia and I am pursuing B.A. LL.B. (Hons.) at the National University of Study and Research in Law, Ranchi. I am a keen learner and my interests in law are drawn towards Sports Law, Arbitration (International and Commercial), Intellectual Property Rights and Philosophy of law. I love to learn new aspects of different fields as well especially science. Apart from that, I love to research new laws and amendments & to read online articles. I love to watch movies of real events and read about conspiracy theories. I like to spend my time watching football matches. I am a football and volleyball player at my university and have hobby of doing mobile photography