FEMA Full Form- What is the Full Form of FEMA?

FEMA full form is Foreign Exchange Management Act. It was introduced to replace the earlier Foreign Exchange Regulation Act (FERA) as it was not compatible with post-liberalisation policies. In 1999, FEMA was passed during the ‘winter session’ of Parliament. After passing the bill in parliament, it became an act on 1 June 2000. According to this act, all offenses related to foreign exchange are civil offenses as opposed to criminal offenses under the jurisdiction of FERA.

What is FEMA Full Form?

FEMA full form is Foreign Exchange Management Act. Its head office which is called Enforcement Directorate is located in New Delhi. It has five zonal offices which are located in Delhi, Mumbai, Chennai, Kolkata and Jalandhar respectively. Each zonal office is administered by the Deputy Director. Each Zone is further classified into 7 sub-zonal offices and 5 field units. The sub-zonal office is headed by Assistant Director and the field unit is administered by Chief Enforcement Officer. 

The key objective of the FEMA is to consolidate and amend the laws related to foreign exchange to facilitate external trade and payments efficiently. The other objective for which it is formulated is to promote the orderly development and management of foreign exchange market in India. FEMA is applicable throughout India. It is also applicable to all offices or agencies which are located outside India but owned or controlled by a person who is a citizen of India.

Difference Between FEMA and FERA

Foreign Exchange Management Act (FEMA full form) originated in 1999 whereas FERA (Foreign Exchange Regulation Act) is an older version that was prevalent much before FEMA i.e. in 1973. FEMA holds responsibility for foreign exchange i.e. forex while FERA deals largely in currencies. FERA has a regulated approach towards forex transactions, on the other hand, FERA is flexible in its approach. In case of violating rules, FEMA has punishment of imprisonment while FERA has a fine or imprisonment too (in case a fine has not been submitted on time).

What are the Main Features of FEMA?

FEMA allows you to sell or draw foreign exchange without prior permission from RBI and you can later inform the RBI. However, there are many other features of FEMA through which the foreign exchange payment is carried out conveniently. They are:

• FEMA is consistent with current account convertibility and allows provisions for progressive liberalization of capital account transactions.
• It lays down the specific areas which require the permission of RBI or the Government of India regarding acquisition or holding of foreign exchange.
• It has classified the foreign exchange transactions in two basic categories- Capital Account Transaction and Current Account Transaction.
• The currencies included under FEMA are- ATM cards, Debit cards and Credit cards.
• The money transactions carried in rupees with Bhutan and Nepal will not fall under FEMA, full form of which is Foreign Exchange Management Act as these countries accept Rupees.

Different Types of Foreign Currency Transactions

Capital Account Transactions and Current Account Transactions are the two types of foreign currency transactions that have been categorized under FEMA.

The Capital Account includes all capital transactions, whereas the Current Account deals with merchandise commerce. Current Account transactions are those that manage the entry and outflow of money to and from a nation or countries over the course of a year as a source of commodity, service and income trading/rendering.

The current account is a measure of a country's economic health and development. 

The balance of payment is made up of current and capital accounts, with the capital account accounting for the flow of capital in the economy as a consequence of capital receipts and expenditures. Domestic investment in foreign assets and foreign investment in domestic assets are both recognised as the capital account. The FEMA applies to the entire region of India and also to the agencies operating outside India uniformly.

Difference Between Current Account Transaction and Capital Transaction

The current account depicts a country’s overall net income, while a capital account tracks the net change of assets and liabilities in a specific financial year. Current accounts deal with the receipt, cash payments and non-capital items whereas capital account deals in sources and makes use of the capital. 

The addition of the current account and capital account depicted in the payment balance will always be zero. Current account deals with short term transactions while the capital account records inward and outward transactions which directly determines a country's assets and liabilities including foreign investment banking, loans and other forms of capital. 

Brief Highlights on FEMA

FEMA empowered the central government to place limitations on and regulate three major things: payments to or receipts from persons outside India, currency dealings and foreign securities transactions. The brief highlights on FEMA are listed below:

• It acts as a hindrance in foreign exchange dealings which take place other than the authorized persons. 
• According to FEMA rules, there are seven types of current account transactions that are prohibited. It includes transactions like lotteries, football pools etc. 
• FEMA rules provide the freedom to ROI (Resident of India) to hold, own, or transport any kind of foreign goods or commodity.
• It defined and regulated the key areas surrounding the acquisition and keeping of foreign currency that required explicit authorisation from the Reserve Bank of India (RBI) or the government.

What are the Features of FEMA?

The main objective of FEMA is to provide foreign trade to boost up development and maintenance of the forex market in the country which boosts the economy. This act consists of seven chapters which are divided into 49 sections, out of which 12 sections deal with the operational part and the remaining other 37 sections deal with cases such as penalties, appeals etc. According to FEMA, the Residents of India are authorized to carry out transactions in foreign exchange, or to hold any fixed property out of India if the property, security or currency was owned when he/she is living outside of India.

Major Provisions Enclosed in FEMA

The provisions of FEMA, enacted in 1999 are as follows:

• Trading or dealing in foreign exchange
• Current account transactions 
• Trading (export of goods and services) 
• RBI to inspect authorized persons 

Penalties Applicable to FEMA

If a person violates the terms of FEMA or any rule, instruction, regulation, order, or notification issued under FEMA, full form of which is Foreign Exchange Management Act, then the person concerned may be fined up to three times the amount involved in the violation, or up to Rs.2 lakh. If the contravention still persists, he will be subject to an additional penalty of Rs.5,000 for each day till the contravention continues.