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 The FEMA, 1999 has come into force on 1 June, 2000 and the FERA, 1973 stands repealed.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

A) Capital 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 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;

(i) 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.

B) Current account transactions

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 course of business,

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

iii) remittance 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.

Limits imposed by FEMA

There are some restrictions in FEMA for forex transactions. A resident Indian can transact in FOREX, for which FEMA specifies some general permission without any prior approval from Reserve Bank of India. General permission is only up to certain limits:

Travel to place other than Nepal / Bhutan

A resident Indian can purchase forex up to USD 10,000 in any calendar year. Prior permission of Reserve Bank of India is required to purchase in excess of USD 10,000.

Visit to Nepal / Bhutan

A resident Indian can carry any amount in INR but denomination of INR of 500 and above are not permitted.

Study abroad

A resident Indian can purchase forex up to USD 1 lakh or estimation from the institution abroad, whichever is higher for any academic year. Prior permission of Reserve bank of India is required to purchase in excess of the above.

Medical treatment

A resident Indian can purchase forex up to USD 1 Lakh on simple declaration and more than USD 1 lakh can be purchased on the bases of estimation from the doctor or hospital overseas.

Person accompanying patient

A resident Indian can purchase forex up to USD 25,000 per person for meeting boarding/lodging/travel expenses of the accompanying attendant. In excess of the above can be purchased on prior approval of Reserve Bank of India.

Employment abroad

A resident Indian can purchase forex up to USD 1 lakh while going for employment abroad. In excess of the above can be purchased on prior approval of Reserve Bank of India.

Immigration

A resident Indian can purchase forex up to USD 1 lakh by providing proof of immigration visa.

International credit card

Credit cards /ATM / debit cards, while outside India to meet the expenses up to overall limit of USD 10000 in a calendar year is permissible.

International credit card outside India can be used to purchase any item, the import of which is permitted in India.

International credit card, while in India for making payment in Forex for purchase of books and other items through Internet is permissible.

Purchase of Forex

Any person can buy Forex from any authorised dealer/full pledge moneychanger. Payment exceeding to Rs 50,000 has to be made by way of a crossed cheque/demand draft only.

Retaining and surrendering

A resident Indian can retain Forex up to USD 2000 in the form of foreign currency notes or Travelers’ cheques (TCs) for future use without any time limit. Cash in excess of that is required to be surrendered to authorised dealer/money changer within 90 days and TCs within 180 days of return.

Gifts and donations

Gift or donations up to USD 5,000 per annum is permitted. In excess of USD 5,000 per remitter per annum can be given with the prior approval of Reserve Bank of India.

Loan from NRI relatives

A resident Indian can borrow a loan from close relatives, who are NRIs, up to USD 2,50,000 which is repayable after a year.

Foreign coins

A resident Indian can retain foreign coins indefinitely without any time limit.

In the following cases, prior approval of Reserve Bank of India is required:

1. Release of forex towards commission to agents abroad for sale of residential flats / commercial plots in India exceeding the limit of USD 25000 or 5% of inward remittance, per transaction, whichever is higher.

2 Remittance towards consultancy services exceeding USD 10 lakh per project for any consultancy.

3 Remittance towards trademark / franchise.

4 Remittance exceeding USD 1 lakh by an entity in India by way of pre-incorporation expenses.

(The author heads Best Praktizes, a financial and statutory outsourcing firm in Bangalore. Email: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it )\n This e-mail address is being protected from spam bots, you need JavaScript enabled to view it )"

Issue BG44 Nov04

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