What does FERA mean?
In 1973, the Foreign Exchange Regulation Act, or FERA in short was passed into law. The Act intends to control certain foreign exchange transactions, keep track of any activities that may affect currency imports and exports, and puts limitations on specific payment methods. The goal was to maintain India’s foreign reserve status by regulating and controlling foreign exchange.
Essential features of the FERA Act, 1973
The FERA was intended to conserve the nation’s foreign exchange resources and applied to all Indian nationals. Some of the key features of the legislation include the following:
- RBI approval for any individual or business to engage in foreign currency trading, it grants permission to the dealers to trade in foreign currencies, subject to review and revocation in the event of non-compliance.
- Giving money changers permission to convert currencies at the rates specified by the RBI
- Limitations on currency import/export, who can engage with the financial currency other than the authorized merchants, on bearer securities issues, and on owning or purchasing real estate outside of India,
- RBI’s authority to request information and seize papers anytime and wherever necessary
Replacement of the FERA Act
The Atal Bihari Vajpayee administration replaced FERA with FEMA (Foreign Exchange Management Act) in 1999 because FERA did not adhere to the government’s post-liberalization plans. By way of a parliamentary act, the Foreign Exchange Management Act of 1999 (FEMA) became operative. It came into effect on December 29, 1999, and adheres to the guidelines of the World Trade Organization(WTO). The Prevention of Money Laundering Act, of 2002, which went into force on July 1, 2005, was also made possible by this.
What are the main features of FEMA?
- It grants the Central Government the authority to control the flow of money to and from a person who is located outside of the nation.
- Without FEMA’s consent, no financial transaction involving foreign securities or exchange may be made.
- The Government of India may forbid a designated person from engaging in foreign exchange transactions within the current account if it is in the best interests of the general public.
- This Act enables RBI to impose limits on capital account transactions, even if they are made through an authorized person.
- According to this law, Indian citizens living in India are permitted to engage in foreign exchange and security transactions as well as have the right to hold or own real estate abroad if the asset was purchased or acquired while the Indian citizen was based abroad or if they inherited it from a foreign citizen.
FEMA vs. FERA
FEMA is a law that was put into place to help with international trade and payments as well as to support the country’s currency market being managed in an orderly fashion while FERA was published to control payments and foreign exchange in India.
Significance of FEMA
FEMA’s principal goal is to aid in the orderly growth and upkeep of India’s foreign exchange and assist with the facilitation of payments and commerce outside of India. It outlines the steps, regulations, and transactions for all currency exchanges in India.
What is the punishment for breaking the FEMA Act?
When a violation is measurable, the adjudicator—an officer with the ED—can impose a fine that is three times the amount of the violation. The fine is fixed at Rs 2 lakh if the violation is not measurable. A further fine of Rs 5,000 per day of infringement may be levied in cases where the infraction is ongoing.
While FERA has helped in the growth and maintenance of the Indian foreign exchange and monitored cash payments, FEMA is a more uniform and standardized act that gives us a more efficient result in the upkeep of international trade and payments of India.