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The Law Relating To Foreign Exchange Transactions In India

  • March 6, 2024
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Foreign exchange is one of the influencing factors of economic health of nations.  Hence,  very  nation prescribe regulations on dealings in foreign exchange ; so also India .

“Foreign exchange” in Indian context means foreign currency and includes,

(i) deposits, credits and balances payable in any foreign currency,

(ii) drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency,

(iii) drafts, travellers cheques, letters of credit or bills of exchange drawn by banks, institution or persons outside India, but payable in Indian currency.

The transaction in “Foreign exchange”  are divided as ‘Capital account transactions’ and    ‘ Current account transactions’.

“Capital account transaction” means a transaction which alters the assets or liabilities, including  contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and includes:

(a) transfer or issue of any foreign security by a person resident in India;

(b) transfer or issue of any security by a person resident outside India;

(c) transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India;

(d) any borrowing or lending in foreign exchange in whatever form or by whatever name called;

(e) any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India;

(f) deposits between persons resident in India and persons resident outside India;

(g) export, import or holding of currency or currency notes;

(h) transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India;

(i) acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India;

(j) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred

(i) by a person resident in India and owed to a person resident outside India; or

(ii) by a person resident outside India.

 “Current account transaction” means a transaction other than a capital account transaction and without prejudice to the generality of the foregoing such transaction includes,

(i) payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business,

(ii) payments due as interest on loans and as net income from investments,

(iii) remittances for living expenses of parents, spouse and children residing abroad, and

(iv) expenses in connection with foreign travel, education and medical care of parents, spouse and children;

Foreign exchange transactions  in India are regulated   by:

  1. The Foreign Exchange Management Act, 1999
  2. Rules made by Ministry of Finance under section 46 of The Foreign Exchange Management Act, 1999
  3. Regulations made by RBI under section 47 of The Foreign Exchange Management Act, 1999
  4. Master Direction issued by RBI on every year
  5. Foreign Direct Investment policy issued by Department for Promotion of Industry and Internal Trade Ministry of Commerce and Industry Government of India &
  6. Reserve Bank of India Notifications and Circulars

The Rules under FEMA are:

  1. FEM (Encashment of Draft, Cheque, Instrument and Payment of Interest) Rules, 2000
  2. FEM (Authentication of Documents) Rules, 2000
  3. FEM (Current Account Transaction) Rules, 2000
  4. FEM (Adjudication Proceedings and Appeal) Rules, 2000
  5. FEM (Compounding Proceedings) Rules, 2000The Appellate Tribunal for Foreign Exchange (Recruitment, Salary and Allowances and Other Conditions of Service of Chairperson and Members) Rules, 2000.

The Regulations under FEMA are.

1.FEM (Acquisition and Transfer of Immovable Property Outside India) Regulations,2015

2.FEM (Borrowing and Lending in Rupees) Regulations, 2000

3.FEM (Borrowing or Lending in Foreign Exchange) Regulations, 2000

4.FEM (Deposit) Regulations, 2016

5.FEM (Export and Import of Currency) Regulations, 2015

6.FEM (Guarantees) Regulations, 2000

7.FEM (Acquisition and Transfer of Immovable Property in India) Regulations, 2000

8.FEM (Establishment in India of Branch office or a Project office or any other Place of Business) Regulations, 2016

9.FEM (Export of Goods and Services) Regulations, 2015

10.FEM (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015

11.FEM (Insurance) Regulations, 2015

12.FEM (Investment in Firm or Proprietary Concern in India) Regulations, 2000

13.FEM (Manner of Receipt and Payment) Regulations, 2016

14.FEM (Permissible Capital Account Transactions) Regulations, 2000

15.FEM (Possession and Retention of Foreign Currency) Regulations, 2015

16.FEM (Realization, Repatriation and Surrender of Foreign Exchange) Regulations, 2015

17.FEM (Remittance of Assets) Regulations, 2016

18. FEM (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000

19.FEM (Foreign Exchange Derivative Contracts) Regulations, 2000

20. FEM (Transfer or Issue of any Foreign Security) Regulations, 2004

21.FEM (Crystallization of inoperative Foreign Currency Deposits) Regulations, 2014

22.FEMA. 120 (Original Notification 19)-120. F.E.M (Transfer or Issue of any foreign

Security) Regulations, 2004

23. FEM (International Financial Services Centre) Regulations, 2015

24. FEM (Regularization of Assets Held Abroad by a Person Resident in India) Regulations, 2015.