The Foreign Exchange Management Act, 1999 (FEMA), is the central Indian law governing foreign exchange dealings and cross-border transactions. Enacted on 29 December 1999 and in force from 1 June 2000, it replaced FERA, 1973 and is administered by the Reserve Bank of India, with enforcement by the Directorate of Enforcement. FEMA treats foreign-exchange contraventions as civil matters, lets most current-account transactions flow freely, and regulates capital-account flows.
Definition
FEMA is the statute that consolidates and amends India’s law on foreign exchange, to facilitate external trade and payments and maintain an orderly foreign-exchange market. Section 2 defines its core building blocks, notably a current account transaction and a capital account transaction, and the regime works through rules and regulations issued under the Act rather than the case-by-case permissions that defined the earlier FERA era.
Governing Provision
FEMA was enacted on 29 December 1999 and came into force on 1 June 2000 through Notification G.S.R. 371(E), replacing the Foreign Exchange Regulation Act, 1973. It runs to 49 sections across seven chapters. The Reserve Bank of India administers the Act and frames regulations under Section 47, the Central Government issues rules under Section 46, and the Directorate of Enforcement investigates contraventions. The Act binds the whole of India and overseas offices controlled by a person resident in India.
Key Features
FEMA reframed India’s foreign-exchange regime from prohibition under FERA to facilitation. Its everyday operation rests on a handful of load-bearing distinctions: current-account versus capital-account transactions, dealing through authorised persons versus outside them, and civil compounding versus penal consequences. The features below capture what makes the Act distinctive for founders, NRIs and companies handling cross-border money.
| No | Key Features | Particulars |
|---|---|---|
| 1 | Civil, not criminal | Section 13 sets civil penalties — up to three times the sum involved, or ₹2 lakh where unquantifiable, plus ₹5,000 a day if continuing. |
| 2 | Liberal current account | Section 5 allows residents to freely draw foreign exchange for current-account transactions, subject only to reasonable public-interest restrictions. |
| 3 | Regulated capital account | Section 6 governs capital flows; since 15 October 2019, the RBI has governed non-debt instruments, and the Central Government has governed debt instruments. |
| 4 | Authorised persons only | Section 3 bars dealing in foreign exchange except through RBI-authorised dealers, banks and money-changers. |
| 5 | Compounding route | Under Section 15 and the Foreign Exchange (Compounding Proceedings) Rules, 2024, many contraventions can be voluntarily settled for a fee. |
Related Terms
- Foreign Direct Investment (FDI)
- External Commercial Borrowing (ECB)
- Liberalised Remittance Scheme (LRS)
- Overseas Direct Investment (ODI)
- Authorised Dealer (AD Bank)
- Person Resident in India
Frequently Asked Questions
Is FEMA the same as FERA?
Who administers and enforces FEMA?
Where does FEMA define current and capital account transactions?
References
- Foreign Exchange Management Act, 1999 (Act 42 of 1999)
- Notification G.S.R. 371(E), dated 1 May 2000
- Finance Act, 2015 — amendment to Section 6 (effective 15 October 2019).
- Foreign Exchange Management (Non-debt Instruments) Rules, 2019.
- Foreign Exchange (Compounding Proceedings) Rules, 2024.
In This Article
Author Bio
Meet Sanjeev Kumar, a distinguished advocate before the Supreme Court of India, High Courts, and National Tribunals. Founding Partner of Juriskps Law Offices, a premier law firm, he specializes in commercial, corporate, tax, arbitration, and IPR matters. His incisive legal insights enrich Setindiabiz’s blog with expert commentary.
