Forex

In 1993, a review of the Foreign Exchange Regulation Act, 1973 was done. Since then, the country’s foreign exchange reserves have substantially increased, along with rationalization of tariffs, current account convertibility, liberalization of Indian investments abroad, increased access to external commercial borrowings by Indian corporates, participation of foreign institutional investors in country’s major stock markets, growth of software, BPO, biotech, pharmaceutical, and telecom industries, huge inflow of foreign direct investment etc.

Hence the Central Government decided to introduce the Foreign Exchange Management Act, 1999 and repeal the Foreign Exchange Regulation Act, 1973 to facilitate external trade and payments and to promote the orderly development and maintenance of foreign exchange markets in India. The FEMA, 1999 has come into force on 1 June, 2000 and the FERA, 1973 stands repealed.

Transactions regulated by Foreign Exchange Management Act, 1999

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 following transactions:

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;

e) any borrowing or lending in rupees in whatever form or by whatever name 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; acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India;

g.A resident Indian can purchase forex up to USD 1 lakh or estimation from the institution abroad

giving a guarantee or surety in respect of any debt, obligation or other liability incurred (i) by a person resident in India and owned to a person resident outside India; or (ii) by a person resident outside India.