Updated on : Oct 12, - AM. 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 was basically introduced to de-regularize and have a liberal economy in India. 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.
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. 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. The payment of commission on exports under Rupees State Credit Routes except commission up to 10 percent of the invoice value of export of tea and tobacco. A transaction of any kind with a resident of Bhutan or Nepal. Corporate Donations by persons other than resident individual One per cent of the forex earnings during the preceding three financial years. Payment for the care of relatives only close relatives outside of India by a person who is resident but not permanently resident in India The salary after deducting income tax, Provident Fund, and other deductions of a person not being a permanent resident in India and a citizen of a foreign state other than Pakistan.
The care of a patient going for a medical check-up or medical treatment abroad. The following foreign transactions require the approval of the Central Government: Cultural tours. Payment of importation by a Public Sector Undertaking on cost, insurance, and freight on ocean transport.
Payment for chartered freight vessels. The payment for hiring transponders for internet service providers or television channels. Payment for multi-model transport operators and their agencies abroad.
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The team ensures that the following publication guidelines are thoroughly followed while developing the content:. By Taxmann Last Updated on 25 June, On the other hand, FEMA aimed to manage only certain forex transactions that might have an impact on national security and the wider national economy, and opened up individual forex transactions to the free market. This includes specific guidance on FEMA-applicable areas and export businesses within India as well as all branches, offices, and agencies located outside India that are owned or controlled by a resident of India.
When FERA was introduced in , the Indian economy was suffering from an all-time low of foreign exchange forex reserves. To rebuild these reserves, the government took a stance that all forex earned by Indian residents -- living within India or abroad -- belonged to the Government of India and had to be surrendered to the Reserve Bank of India RBI. However, the objective of FERA did not quite have the effect that was envisioned and the Indian economy continued to decline.
These concessions made FERA largely irrelevant under the new economic regime. Trade Advice. Objectives of FEMA Act Following are the most important objectives of FEMA:- Facilitating external trade and payments Promoting the orderly development and maintenance of foreign exchange market in India Defining formalities and procedures for all forex transactions in India 3. Additionally, there were other important facts such as: It did not apply to Indian citizens who resided outside India.
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