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Comparison of FERA & FEMA
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If you learn only methods you will be tied to
your methods, but if you learn principles you
can device your own methods.
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Agenda
Introduction of FERA
Why FERA
Objectives of FERA
FEMA
Structure of the FEMA Act Case study of FEMA
Current A/c Transaction
Capital A/c Transaction
Prohibited Transactions
Transactions with CG Approval Comparison between FERA & FEMA
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FERA
FERA- AN ACT
To amend the law regulating certain payments, dealings in foreign exchange,
effecting foreign exchange and import and export of currency, for the conservation ofthe foreign exchange resource of the country and the proper utilization thereof in the
interests of the economic development of the country.
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FERA
Regulated in India by the Foreign Exchange Regulation Act (FERA),1973.
Consisted of 91 sections.
FERA Emphasized strict exchange control.
Control everything that was specified, relating to foreign exchange
Law violators were treated as criminal offenders.
Aimed at minimizing dealings in foreign exchange and foreign securities.
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Why FERA?
FERA was introduced at a time when foreign exchange (Forex) reserves of the
country were low, Forex being a scarce commodity.
FERA therefore proceeded on the presumption that all foreign exchange earned by
Indian residents rightfully belonged to the Government of India and had to be
collected and surrendered to the Reserve bank of India (RBI).
FERA primarily prohibited all transactions, except ones permitted by RBI.
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Objectives
To regulate certain payments.
To regulate dealings in foreign exchange and securities.
To regulate transactions, indirectly affecting foreign exchange.
To regulate the import and export of currency.
To conserve precious foreign exchange.
The proper utilization of foreign exchange so as to promote the economic
development of the country.
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MANAGEMENT,1999[FEM
A FEMA is an act to consolidate and among the
law relating to Foreign Exchange with theobjective of facilitating external trade and
payments and for promoting the orderlydevelopment and maintenance of Foreignexchange market in India.
Foreign Exchange Management Act or in short(FEMA) is an act that provides guidelines for thefree flow of foreign exchange in India.
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The Objectives are as follows To regulate impact and export of currency
To regulate acquisition holding etc .of immovable property inIndia by NRIs.
To regulate holding of property (immovable) outside India.
To regulate certain payments.
To regulate Foreign companies.
To regulates dealing in FE and securities.
To regulate the transactions indirectly affecting FE.
To regulate employment of foreign nationals.
To converse the FE resources of the country and to utilizethe same is the interest of the economic development of thecountry.
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STRUCTURE OF THE FEMA (ACT)
FEMA has in all 49 sections of which 9
(section 1 to 9) are substantive and the rest are
procedural/administrative.
Thus RBI is entrusted with the administration
and implementation of FEMA
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The FEMA act extends to the whole of India.
The main provision of the Act are as follows:
Section 2:Clarity on several definitions and terms used in the context offoreign exchange.
Section 3:Prohibits dealing in Foreign Exchange
Section 4 Holding of foreign Exchange
Section 5 Current account Transaction
Section 6 : Capital account Transaction
Section 7: Export of Goods and Services
Section 8 : Realisation of Re atriation and Forei n Exchan e
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Case study: Kites
Allegations:
1.Used foreign exchange meant forproduction work to meet personalexpenses
2.Carried junk film reels from India forthe shoot but used fresh reels boughtin the US
3.Paid Spectrum Entertainment just $4.3 million against pending bills of $
5.9 million
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Background of case
Production budget of Rs. 60 crore
Sold for Rs. 110 crore in worldwiderights to the Reliance Group
Film shot in Maldives, Mexico and theUS
Spectrum Entertainment hired byRoshan to manage all outdoor shootsof Kites in the US
Reels were bought in US and costRoshan Rs. 50 lakhs
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evaluation
1. The production house is gaining taxbenefits showing personnelexpenditure as creative expenses
2. Evaded duty on Reels, bought fromUS, when returned to India
3. Spectrum has all the challans ofwithdrawals by Roshan
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conclusions
1. The personal expense, if proved,must only invite minimal penalty of3 times the duty evaded
2. Spending of Rs. 50 lakhs in US isviolation of FEMA and can invitepenalty of upto 3 times the original
amount applicable
3. The Spectrum matter will not betaken up by the ED without a proper
evaluation of the situation between
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Rule 3 read with Schedule I:Prohibited Transactions
Pymt for travel to Nepal and/orBhutan
Remittance out of income from :-lottery winnings, or racing/riding etc.,or any other hobby;
Remittance for purchase of :- lotterytickets, or banned/ prescribedmagazines, football pools,sweepstakes etc.
Pymt of comm. on exports made
u e rea t c e u e
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u e rea w t c e u e :Transactions with CG
Approval Pymt of imports by a Govt. Deptt. ora PSU on CIF basis
Cultural Tours
Remittance of prize money/sponsorship of sports activity abroad> US$ 1,00,000 (no restriction ifpymt made by International/National/ State level Sports Bodies)
Pymt for health insurance from a
company abroad
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Rule 5 read with Schedule III:(if beyond limits)
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Similarities between FERA &FEMA
The Reserve Bank of India andcentral government would continueto be the regulatory bodies.
Presumption of extra territorialjurisdiction as envisaged in section(1) of FERA has been retained.
The Directorate of Enforcementcontinues to be the agency forenforcement of the provisions of the
law such as conducting search and
Comparison FERA & FEMA
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Comparison FERA & FEMA
Differences FERA FEMA
Emphasis On regulation of foreignexchange
On management offoreign exchange
Situation Stringent controls wererequired on the use offoreign exchange
Stringent controls arenot required now
Permission Need to take permissionof RBI in connection withremittances
No need for seeking thepermission of RBI exceptin case of Section 3
Restrictions Restrictions on drawalsof foreign exchange forthe purpose current
account transactions
Section 5 removes allrestrictions on drawalsof foreign exchange
Comparison FERA & FEMA
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Comparison FERA & FEMADIFFERENCES FERA FEMA
PROVISIONS FERA consisted of 91 sections, and was
more complex
FEMA is much simple, and consist of only 49
sections.
FEATURES Presumption of negative intention
(Mens Rea ) and joining hands in
offence (abatement) existed in FERA
These presumptions of Mens Rea and abatement
have been excluded in FEMA
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.
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 )
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 vice-a-versa may not hold
true.
C i FERA & FEMA
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Comparison FERA & FEMAPUNISHMENT 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.
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.
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)
RIGHT OF
ASSISTANCE
DURING LEGAL
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)
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THANK YOU!!!
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