( Best ) FERA And FEMA, Meaning, Act and Diffrence

by Mr. DJ


FEMA stands for Foreign Exchange Management Act which was introduced in the year 1999 and it acts as a replacement for the FERA (Foreign Exchange Regulation Act). FEMA was enforced on June 1, 2000. This Act aims to make all the offenses relating to foreign exchange from criminal to civil offenses. The main purpose behind the Foreign Exchange Control Act (1999) is to consolidate and amend the foreign exchange legislation with the aim of facilitating foreign trade and payments. FEMA was also formulated to maintain foreign exchange market in India and to promote the orderly development of the same. FEMA applies to all parts of India. The law also applies to all branches, offices, and agencies outside India owned or controlled by a person who is a resident of India.


Features of FERA:

(1) This Act may be called the Foreign Exchange Regulation Act, 1973.

(2) It extends to the whole of India.

(3) It applies also to all citizens of India outside India and to branches and agencies outside India of companies or bodies corporate, registered or incorporated in India.

(4) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint in this behalf:

Provided that different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision.

According to these guidelines, the principal rule was that all branches of foreign companies operating in India should convert themselves into Indian companies with at least 60 per cent local equity participation. Furthermore all subsidiaries of foreign should bring down the foreign equity share to 40% or less.  The actual impact of this act was completely negative on the economic development of the country, because it tied the hands of big corporate houses to expand their business, so it was felt by the policy makers that there should be some relaxation in the act so that the economic development through industrialization can be speed up in the country.

Features of the FEMA

The following are some of the important features of Foreign Exchange Management Act:

a. It is consistent with full current account convertibility and contains provisions for progressive liberalisation of capital account transactions.

b. It is more transparent in its application as it lays down the areas requiring specific permissions of the Reserve Bank/Government of India on acquisition/holding of foreign exchange.

c. It classified the foreign exchange transactions in two categories, viz. capital account and current account transactions.

d. It provides power to the Reserve Bank for specifying, in , consultation with the central government, the classes of capital account transactions and limits to which exchange is admissible for such transactions.

e. It gives full freedom to a person resident in India, who was earlier resident outside India, to hold/own/transfer any foreign security/immovable property situated outside India and acquired when s/he was resident.

f. This act is a civil law and the contraventions of the Act provide for arrest only in exceptional cases.

g. FEMA does not apply to Indian citizen’s resident outside India.

Read More Than 100+ MCQ on FEMA and FERA

Differences between FERA and FEMA

1 PROVISIONS FERA consisted of 81 sections, and was more complex FEMA is much simple, and consist of only 49 sections.
2 FEATURES Presumption of negative intention ( Mens Rea ) and joining hands in offence (abatement) existed in FEMA These presumptions of Mens Rea and abatement have been excluded in FEMA
3 NEW TERMS IN FEMA Terms like Capital Account Transaction, current Account Transaction, person, service etc. were not defined in FERA. Terms like Capital Account Transaction, current account Transaction person, service etc., have been defined in detail in FEMA
4 DEFINITION OF AUTHORIZED PERSON Definition of ” Authorized Person” in FERA was a narrow one ( 2(b) The definition of Authorized person has been widened to include banks, money changes, off shore banking Units etc. (2 ( c )
5 MEANING OF “RESIDENT” AS COMPARED WITH INCOME TAX ACT. There was a big difference in the definition of “Resident”, under FERA, and Income Tax Act The provision of FEMA, are in consistent with income Tax Act, in respect to the definition of term ” Resident “. Now the criteria of “In India for 182 days” to make a person resident has been brought under FEMA. Therefore a person who qualifies to be a non-resident under the income Tax Act, 1961 will also be considered a non-resident for the purposes of application of FEMA, but a person who is considered to be non-resident under FEMA may not necessarily be a non-resident under the Income Tax Act, for instance a business man going abroad and staying therefore a period of 182 days or more in a financial year will become a non-resident under FEMA.
6 PUNISHMENT Any offence under FERA, was a criminal offence , punishable with imprisonment as per code of criminal procedure, 1973 Here, the offence is considered to be a civil offence only punishable with some amount of money as a penalty. Imprisonment is prescribed only when one fails to pay the penalty.
7 QUANTUM OF PENALTY. The monetary penalty payable under FERA, was nearly the five times the amount involved. Under FEMA the quantum of penalty has been considerably decreased to three times the amount involved.
8 APPEAL An appeal against the order of “Adjudicating office”, before ” Foreign Exchange Regulation Appellate Board went before High Court The appellate authority under FEMA is the special Director ( Appeals ) Appeal against the order of Adjudicating Authorities and special Director (appeals) lies before “Appellate Tribunal for Foreign Exchange.” An appeal from an order of Appellate Tribunal would lie to the High Court. (sec 17,18,35)
9 RIGHT OF ASSISTANCE DURING LEGAL PROCEEDINGS. FERA did not contain any express provision on the right of on impleaded person to take legal assistance FEMA expressly recognizes the right of appellant to take assistance of legal practitioner or chartered accountant (32)
10 POWER OF SEARCH AND SEIZE FERA conferred wide powers on a police officer not below the rank of a Deputy Superintendent of Police to make a search The scope and power of search and seizure has been curtailed to a great extent

Withdrawal of Foreign Exchange

Now, the restrictions on withdrawal of Foreign Exchange for the purpose of current Account Transactions, has been removed. However, the Central Government may, in public interest in consultation with the Reserve Bank impose such reasonable restrictions for current account transactions as may be prescribed.

FEMA has also by and large removed the restrictions on transactions in foreign Exchange on account of trade in goods, services except for retaining certain enabling provisions for the Central Government to impose reasonable restriction in public interest.


FEMA does not see the exchange rate flow as an evil Act but works to factor it in to manage the exchange rate process. The goal is to manage the exchange rate more efficiently, rather than retain it. It applies general asset management rules to foreign exchange management and aims to optimize it instead of maximizing it. It promotes a more liberal form of economy.

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