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FEMA is the Foreign Exchange Management Act, 1999
which came into effect on 1st May, 2000. It regulates foreign exchange
transactions. But the bare Act reveals
only the basic information such as it tells you who is responsible for which
part of the Act and the functions of the persons dealing in foreign
exchange. So, where do we need to look
for the details?
There are two sets of transactions dealt with in FEMA
– Capital Account Transactions and Current Account Transactions. Capital Account Transactions are those which
appear in the Balance Sheet and Current Account Transactions appear in the
Profit and Loss account.
Current
Account Transactions are regulated by the Central Government
directly. The government has issued the
Foreign Exchange Management (Current Account Transactions) Rules, 2000 for this
purpose. These Rules contain three
Schedules:
·
Schedule I based on Rule 3 – Transactions which are
prohibited like remittance out of lottery winnings, remittance of income from
racing etc.;
·
Schedule II
based on Rule 4 contain the Transactions which require prior approval of
the Central Government like cultural tours, remittance of prize money etc. and
·
Schedule III – Rule 5 which are transactions that
require the prior approval of RBI eg. Gift remittance, Donation etc.
Capital
Account Transactions, on the other hand are directly regulated by the
RBI. The Notifications originally issued
by the RBI were numbered FEMA 1 to FEMA 25.
Each of these contained the regulations for a particular type of
transaction like Direct Investment Overseas (FEMA 19) or Foreign Direct
Investment into India (FEMA 20) etc.
FEMA 19 has been repealed and FEMA 120 came into being in 2004. However, if we look at the RBI website, we
will find that the List of Notifications extend upto FEMA 315/2014-RB. So what
are the notifications between FEMA 26 and FEMA 315 containing? Each original
notification (FEMA 1 to FEMA 25) is modified from time to time by RBI by
issuing new ones. We have to take into
account the modifications made and work with the amended version of the
original notification. The natural question
that will arise, therefore, is how do I keep track?
RBI issues Master Circulars on July 1st
every year. Master circulars are issued
for each of the capital account transactions and it consolidates all the
circulars and notifications issued upto 30th June of that year. Since it is drafted in a simple language to
enhance understanding of the current situation, it may not give complete
details of all the notifications. It could be used as a reference point but ideally,
it is best to refer to the original notifications with all amendments.
Apart from this, we have A.P. (DIR) Circulars issued
by RBI from time to time which are required to be taken into account. Though, notifications have the force of law
and circular is only a prior intimation of the same, circulars also are
required to be followed. In a year from
July to June, on an average, 100-150 circulars are issued.
Press releases and press notes are also issued from
time to time. Press releases are just
information about some happening – past or more appropriately, future and press
notes are issued by the Department of Industrial Policy and Promotion with
respect to specific industries. Press
releases do not have the force of law but press notes do and therefore, we need
to track them and keep them in mind while working with FEMA.
The background given above is necessary for
understanding how to study FEMA. Now,
the step wise procedure to be followed is given below:
-
FEMA bare act is the starting point
-
Select the topic which you want to understand eg. FDI
-
Master Circular for that
particular topic will give you the overview of the current regulations.
-
Next, read the original
regulations with respect to a particular topic eg. FEMA 20 for FDI.
-
Track the changes that have
happened over the years. (The last page
of the latest amendment will give all the amendments made over the years).
-
Then, work with the latest
circulars which have been issued after June.
-
Once you have done this with
respect to one topic, go on to the next.
Happy studying!
- FCS Ramadevi R. Iyer
