About FEMA, 2024

RBI’s Draft Foreign Exchange Management Regulation, 2024

Introduction:
The Reserve Bank of India (RBI) has proposed new draft regulations to streamline export-import transactions, particularly aimed at easing business operations for small exporters and importers.

Key Highlights of Draft Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2024:

• Declaration of Export Value:
  Exporters must declare the full export value of goods or services to the appropriate authority.
• Repatriation Timeline:
  The export value must be realized and repatriated to India:
  • Within 9 months from the date of shipment for goods.
  • Within 9 months from the date of invoice for services.
• Extension by Authorized Dealers (AD):
  Authorized Dealers (AD) can extend this period if there are reasonable and sufficient reasons.
• Restrictions on Import of Precious Metals:
  No advance remittance is allowed for the import of gold and silver unless specifically approved by the RBI.

Aim of the Draft Regulations:

• Business Convenience:
  Designed to enhance ease of business, particularly for small exporters and importers.
• Efficiency in Foreign Exchange Services:
  Authorized Dealer Banks will be enabled to offer faster and more efficient services to their foreign exchange clients.
• Alignment with FEMA:
  These regulations are aligned with India’s progressive liberalization policies governing foreign exchange under the Foreign Exchange Management Act (FEMA).

What is FEMA?

• Full Form:
  Foreign Exchange Management Act, 1999.
• Enactment Date:
  June 1, 2000.

Objectives of FEMA:

1. Facilitate External Trade and Payments:
   FEMA helps in regulating and facilitating external trade and cross-border payments.
2. Orderly Development of Foreign Exchange Market:
   It promotes the development of a stable and regulated foreign exchange market in India.

Scope of FEMA:

• Regulates:
  All foreign exchange transactions, acquisitions, payments, exports, imports, and related activities in India.
• Regulatory Authority:
  The Reserve Bank of India (RBI) is responsible for enforcing FEMA regulations.
• Nature of Offence:
  FEMA treats violations as civil offences, unlike the earlier Foreign Exchange Regulation Act (FERA), which treated them as criminal offences.
• Penalties:
  Imposes penalties and fines for violations of the regulations.
• Applicability:
  Applicable across the entire country, including Indian agencies and offices managed by Indian citizens outside India.

Key Entities and Activities Covered under FEMA:

• Foreign Exchange:
  Deals with the exchange of foreign currency and related matters.
• Foreign Securities:
  Regulates transactions related to foreign securities.
• Export and Import:
  Covers both export and import of commodities and services.
• Banking, Financial, and Insurance Services:
  Extends to transactions involving banking, finance, and insurance.
• Control of Foreign Exchange:
  The RBI controls foreign exchange through authorized persons, which include authorized dealers, money changers, offshore banking units, etc.

Types of Foreign Exchange Transactions under FEMA:

1. Current Account Transactions:
   • Definition:
     Transactions that do not significantly affect a resident’s assets or liabilities outside India.
   • Examples:
     Payments for foreign trade, foreign travel expenses, and educational expenses abroad.
2. Capital Account Transactions:
   • Definition:
     Transactions that alter a resident’s assets or liabilities outside India.
   • Examples:
     Investments in foreign securities, acquisition of immovable property abroad.

Resident Indians under FEMA:

• Definition:
  A resident in India, as per Section 2(v) of FEMA, is an individual who has resided in India for more than 182 days during the preceding financial year.
• Entities Covered:
  • Indian-registered corporations.
  • Offices or agencies in India owned or controlled by non-residents, or vice versa.

Conclusion:

The RBI’s Draft Foreign Exchange Management Regulation, 2024 aims to streamline and simplify export-import processes, ensuring ease of business, particularly for small-scale exporters and importers. It aligns with the broader goals of FEMA to regulate foreign exchange transactions effectively, promoting external trade, and ensuring the orderly development of India’s foreign exchange market.