History of FEMA Act
While the Foreign Exchange Regulation Act was enacted during times of severe foreign exchange shortages, the Foreign Exchange Management Act provides for a more liberalised approach, facilitating global trade and transactions.
The enactment of this law signifies the complete integration of Indian trade and commerce with the global economy. The liberalised approach to foreign exchange management helped further improve the country's position in Ease of Doing Business, along with other leading indexes and parameters.
Foreign Exchange Management Act In India (FEMA)
Under other laws that permit everything unless prohibited, the Foreign Exchange Regulation Act seemed to prohibit everything unless permitted, resulting in an enormous drain on the private sector.
- This made its tone and tenor quite impractical and involved punishment even for minor offences. Under this law, a person remains guilty unless proven innocent.
- Also, it could not successfully restrict activities like the expansion of multinational corporations. An amendment was suggested to the act to prevent it from getting redundant. It was decided after the 1993 amendment that FERA could become FEMA.
Importance of FEMA Act
The Foreign Exchange Management Act was brought into action in 2000 to put into practice a regime for foreign exchange management that works consistently with the World Trade Organisation framework.
- It also served as the basis for the 2002 Money Laundering Act which came into force in 2005. FEMA sought to ease the external trade transactions as they no longer relied on RBI consent.
- The act applies to India and equally applies to offices and agencies situated outside India that are owned and operated by Indians. Foreign Exchange Management Act has its head office located in New Delhi and is called the Enforcement Directorate.
Foreign Exchange Management Act - Violations, Penalties and Enforcement
Primary details briefing the violations, penalties and enforcement under the FEMA act have been enlisted below;
- It contains seven chapters divided into forty-nine sections of which twelve cover the operational aspects while others are related to contravention, appeals, penalties, and more.
- Any violation of the law can entitle you to a penalty of 2 lakh rupees or three times that of the involved contravention if the sum can be quantified.
- The Foreign Exchange Management Act gives the government the power to restrict activities like payments to individuals outside India. All the deals in foreign exchange under the current account can be done only through authorised entities.
- The new FEMA Act was a significant improvement over the Foreign Exchange Regulation Act, which stifled the ease of doing business.