The Best Features of Fema & Fera in India

features of fema

Features of fema: Over time, foreign exchange restrictions have been changed to make it easier to send and receive money from India। Many rules have changed as India’s economy has liberalized।

June 1, 2000 marked the signing of the Foreign Exchange Management Act। Consequently, the Indian forex market is governed by the Reserve Bank of India (RBI), and the introduction of The Foreign Exchange Management opened the way for the 2002 Prevention of Money Laundering Act (PMLA)।.

Indian foreign exchange regulations are governed by the Foreign Exchange Management Act of 1999 (FEMA)। India’s highest foreign exchange regulator is the Reserve Bank of India (RBI), which makes laws and supervises all-important approvals।

FEMA applies to all of India, as well as any establishments, offices, or establishments outside of India that are owned or run by an Indian citizen।

History of fera and fema

Foreign Exchange Regulation Act (FERA) was established during a time when the country’s foreign exchange reserves were low। FERA was based on the idea that all foreign currency made by Indians belonged to the Indian government and had to be collected and returned to the Reserve Bank of India (RBI)। FERA bans all transactions not approved by RBI। 

FERA was established to regulate certain payment transactions in foreign exchange and securities that have an indirect effect on the import and export of foreign currency. FERA also aimed to conserve valuable foreign exchange and optimize its use in order to boost the country’s economic growth।

Foreign Exchange Regulation Act (FERA)

Indian law pertaining to foreign exchange is governed by the FERA (Foreign Exchange Regulation Act). The law was passed in order to control foreign investment in India. The FERA was started after India gained its independence. It was initially intended to be a short-term solution to control the flow of foreign currency. In 1957, the law became a permanent one. India saw a rise in foreign direct investments as its modernisation process advanced. Consequently, it needed to be protected.


The Foreign Exchange Regulation Act was updated as a result in 1973. There are 81 separate sections in FERA. Under FERA, every offence was considered a criminal offence, punishable by imprisonment under the Code of Criminal Procedure of 1973. 

Features of FERA

  • Restrictions on the import and export of certain currencies
  • Illegal payment limitations when using foreign currency
  • Payments are made in conformity with RBI regulations for exported goods.
  • there are a number of limitations on the issue of bearer securities.
  • Restrictions on settlement in other nations
  • Possession of real estate outside of India is prohibited
  • Limitations on the nomination of specific people and businesses as FOREX agents
  • There are several limitations on starting a business in India.
  • The Reserve Bank must grant permission for foreign nationals to perform their professions, etc., in India.
  • Restrictions on buying, retaining, and using real estate in India
  • The ability of the RBI to subpoena any person’s records, including Indian cash, foreign currency, and account books, for information
  • Having the right to conduct searches and seizures

The Transition from FERA to FEMA

The earlier version contained many rather strict regulations (for instance, guilt was presumed until proven innocent). All unnecessary limitations were removed. To encourage more foreign investment in India and boost the country’s foreign cash flow, limits on international investment have been loosened. FERA, on the other hand, went against the liberalization objectives of the Indian government. When the FERA was finally repealed in 1999, some of the FERA 1973 rules continued to be in force under the FEMA 1999.

What Are The Main Features of FEMA?

Main Features of Foreign Exchange Management Act, 1999

It gives powers to the Central Government to regulate the flow of payments to and from a person situated outside the country. All financial transactions concerning foreign securities or exchange cannot be carried out without the approval of FEMA.

Features of FEMA

  • It adheres to complete current account convertibility and has provisions for gradual capital account liberalization.
  • It is more flexible in its application since it outlines the circumstances under which the Reserve Bank or Government of India must expressly authorize the purchase or retention of foreign currency.
  • Capital account and current account transactions were the two categories used to categorize foreign exchange transactions.
  • In collaboration with the federal government, it grants the Reserve Bank the ability to specify the categories of capital account transactions and the exchange restrictions for such transactions.
  • It gives an Indian resident who was formerly abroad complete freedom to hold, own, and transfer any foreign securities or real estate quired while residing in India.
  • Because this is a civil law, arrests for infractions only occur in extreme cases.
  • Indian nationals residing abroad are not covered by the FEMA


Basis of Difference



was Established when

Forex reserves were low

Forex’s position was satisfactory but FERA needed some amendments

Forex transactions



Number of sections



Year of enactment



Conclusion- In 1991, India was the first country to implement a liberalization policy, feature of fema which allowed international investment in a variety of areas. The Tarapore Committee suggested modifications to the current legislation governing foreign exchange in the country in 1997. FERA was superseded by FEMA in the country after that.

Leave a Comment

Your email address will not be published. Required fields are marked *