What is FEMA Act 1999 ?

Foreign Exchange Management Act, 1999 (FEMA) came into force by an act of Parliament & came into effect from 1st June, 2000.

FEMA Act was formulated by the central government to encourage external payments and across the border trades in India replacing the earlier enacted (FERA) Foreign Exchange Regulation Act.

The head office of FEMA is situated in New Delhi known as Enforcement Directorate and is headed by a Director.


The main objectives of this act are as follows:-

  • To help facilitate external trade and payments in India.
  • To control and direct the employment business and investment of the non-residents.
  • To promote the systematized development and maintenance of a healthy foreign exchange market in India.
  • To assist orderly development and maintenance of the Indian forex market.


The main features of FEMA are as follows-

  1. All financial transactions concerning foreign securities or exchange cannot be carried out without the approval of FEMA. All transactions must be carried out through “Authorised Persons.”
  2. FEMA does not apply to the Indian citizens who resides outside India. This criteria is checked by the number of days a person stays in India for more than 182 days in the preceding financial year.
  3. Under FEMA, foreign exchange transactions are divided into two categories, they are capital account and current account transactions.
  4. This FEMA Act is a civil law and any kind of contraventions of the Act provide for arrest only in the exceptional cases.


FEMA (Foreign Exchange Management Act) is applicable to the whole of India and equally applicable to the agencies and offices located outside India (which are owned or managed by an Indian Citizen). It is applicable to:

  • exports of any foods and services from India to outside, foreign currency, that is any currency other than Indian currency,
  • foreign exchange,
  • foreign security,
  • Imports of goods and services from outside India to India,
  • securities as defined in Public Debt Act 1994,
  • banking, financial and insurance services,
  • sale, purchase and exchange of any kind (i.e. Transfer),
  • any overseas company that is owned 60% or more by an NRI (Non Resident Indian)


  1. FEMA allows free transactions on current account subject to reasonable restrictions that may be imposed. (Section 5)
  2. RBI controls over capital account transactions. (Section 11)
  3. It allows Control over realization of export proceeds.  (Section 7 and 8)
  4. It allows dealing in foreign exchange through authorized persons like authorized dealer or money changer, AD Category banks etc. (Section 10)
  5. It provides appeal provision including Special Director (Appeals) (Section 17)
  6. It is governed by Directorate of enforcement. (Section 36)
  7. FEMA recognized the possibility of Capital Account convertibility. (Section 6)
  8. The violation of FEMA is a civil offence. (Section 13)


Thus, in a nutshell, FEMA act, 1999 is a soft, liberal & simplified law that aims at boosting foreign trade and investment more in tune with country’s new economic environment of globalization of Indian economy.

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