The Indian Parliament approved the Foreign Currency Management Act of 1999 (FCMA) with the intention of “consolidating and revising the legislation regulating foreign engagement to enhance trade flows and payments and to support the orderly formation and maintenance of India’s foreign exchange market.” The Foreign Exchange Regulation Act was abolished and replaced by the FEMA Act on December 29, 1999. ( Foreign Exchange Management Act). Foreign Exchange Regulation Act (FERA) aimed to improve regulation for the public. Under this statute, offences involving foreign currency are now considered civil offences. It replaces FERA, which became incompatible with the Indian government’s pro-liberalization objectives, and applies to the whole nation. It enabled the development of a new foreign currency management program consistent with the growing framework of the World Trade Organization (WTO).

The Foreign Exchange Regulation Act (FERA) of 1973 (predecessor to FEMA) prohibited anything unless specifically approved. As a consequence, the tenor and tone of the Foreign Exchange Regulation Act were substantially changed. Even small offences carried a jail sentence. Under FERA, a person was believed guilty until he demonstrated his innocence, although under other laws, a person is presumed innocent until proven guilty.

The Foreign Exchange Management Act (FEMA) is a regulatory framework that enables the Reserve Bank of India and the Central Government to enact the Foreign Exchange and Regulation Act on foreign exchange in accordance with India’s Foreign Trade Policy.

Features Of FERA

The objective of FERA, which applied to all Indian people, was, among other things, to preserve the country’s foreign currency resources. The following are some key aspects of the act:

The Reserve Bank of India (RBI) authorizes individuals and businesses to engage in foreign currency transactions.

The Reserve Bank of India authorizes dealers to do business in foreign currencies, subject to scrutiny and revocation for noncompliance.

The RBI allows money changers to exchange currencies at the rates it sets.

Import/export limitations on currencies

It is forbidden for parties other than authorized dealers to engage in financial currency transactions.

Bearer securities are subject to many limitations on their issuance.

There are limits on owning or purchasing immovable property outside of India.

There are payment limitations when sending or receiving funds from or to a non-Indian resident.

The RBI’s ability to seek information and seize papers whenever and wherever necessary.

Note on Indian Real Estate Sector with reference to FEMA:

FEMA was enacted to regulate foreign exchange transactions, including those related to real estate as well, the act also aims to promote foreign investment in the Indian real estate sector while ensuring that such investments do not negatively impact the Indian economy and Law of the land.

Under FEMA, non-resident Indians (NRIs) and foreign nationals can invest in Indian real estate by purchasing property, subject to certain conditions. NRIs can purchase any type of property in India, while foreign nationals can only purchase residential or commercial properties for their own use.

Foreign investors can also invest in Indian real estate through the Foreign Direct Investment (FDI) route. However, FDI is subject to certain conditions and restrictions, such as minimum investment amounts and sector-specific guidelines.

FEMA also regulates the repatriation of funds invested in Indian real estate by NRIs and foreign investors. NRIs can repatriate the sale proceeds of their properties, subject to certain conditions, while foreign investors can repatriate their investments, subject to conditions such as lock-in periods and exit options.

In summary, FEMA plays a crucial role in regulating foreign investment in the Indian real estate sector. While the law promotes foreign investment, it also aims to protect the Indian economy and ensure that such investments are made in a transparent and regulated manner.

FEMA RULES FOR NRI’S AND PIO’S IN INDIA

NRIs (Non-Resident Indians) and PIOs (Persons of Indian Origin) are subject to certain rules under FEMA. Here are some of the important rules that NRIs and PIOs should be aware of:

1. Investment in India: NRIs and PIOs are allowed to invest in India subject to certain conditions. They can invest in equity shares, mutual funds, government securities, and other instruments as prescribed by the Reserve Bank of India (RBI). However, investments in certain sectors may require prior approval from the government.
2. Repatriation: NRIs and PIOs are allowed to repatriate funds from India subject to certain conditions. Repatriation of investments made through a non-resident external (NRE) account is freely allowed, while repatriation of investments made through a non-resident ordinary (NRO) account is subject to certain limits.
3. Property transactions: NRIs and PIOs are allowed to buy and sell property in India subject to certain conditions. However, they are not allowed to buy agricultural land, plantation property, or farmhouses in India.
4. Bank accounts: NRIs and PIOs are allowed to open and maintain bank accounts in India subject to certain conditions. They can open NRE, NRO, and foreign currency non-resident (FCNR) accounts.
5. Remittances: NRIs and PIOs are allowed to remit funds to India subject to certain conditions. They can remit funds for personal and business purposes, subject to limits prescribed by the RBI.

It is important for NRIs and PIOs to comply with the rules and regulations under FEMA to avoid any legal issues or penalties in India.