FERA Final[1]Ggg

8/3/2019 FERA Final[1]Ggg

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Comparison of FERA & FEMA


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Agenda

Introduction of FERA

Why FERA

Objectives of FERA

FEMA

Structure of the FEMA Act Case study of FEMA

Current A/c Transaction

Capital A/c Transaction

Prohibited Transactions

Transactions with CG Approval Comparison between FERA & FEMA


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FERA

FERA- AN ACT

To amend the law regulating certain payments,

dealings in foreign exchange, effecting foreign

exchange and import and export of currency, for the

conservation of the foreign exchange resource of thecountry and the proper utilization thereof in the interests

of the economic development of the country.


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FERA

Regulated in India by the Foreign Exchange

Regulation Act (FERA),1973.

Consisted of 91 sections.

FERA Emphasized strict exchange control.

Control everything that was specified, relating to

foreign exchange

Law violators were treated as criminal offenders.

Aimed at minimizing dealings in foreign exchange

and foreign securities.


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Why FERA?

FERA was introduced at a time when foreignexchange (Forex) reserves of the country were low,Forex being a scarce commodity.

FERA therefore proceeded on the presumption thatall foreign exchange earned by Indian residentsrightfully belonged to the Government of India andhad to be collected and surrendered to the Reservebank of India (RBI).

FERA primarily prohibited all transactions, exceptones permitted by RBI.


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Objectives

To regulate certain payments.

To regulate dealings in foreign exchange and

securities.

To regulate transactions, indirectly affecting foreignexchange.

To regulate the import and export of currency.

To conserve precious foreign exchange.The proper utilization of foreign exchange so as to

promote the economic development of the country.


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FOREIGN EXCHANGE

MANAGEMENT,1999[FEMA

FEMA is an act to consolidate and among the law relatingto Foreign Exchange with the objective of facilitatingexternal trade and payments and for promoting the orderly

development and maintenance of Foreign exchange marketin India.

Foreign Exchange Management Act or in short (FEMA) is anact that provides guidelines for the free flow of foreignexchange in India.


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The Objectives are as follows

To regulate impact and export of currency

To regulate acquisition holding etc .of immovable propertyin India by NRIs.

To regulate holding of property (immovable) outside India.

To regulate certain payments.

To regulate Foreign companies. To regulates dealing in FE and securities.

To regulate the transactions indirectly affecting FE.

To regulate employment of foreign nationals.

To converse the FE resources of the country and to utilizethe same is the interest of the economic development ofthe country.


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STRUCTURE OF THE FEMA (ACT)

FEMA has in all 49 sections of which 9

(section 1 to 9) are substantive and the rest are

procedural/administrative.

Thus RBI is entrusted with the administration

and implementation of FEMA


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The FEMA act extends to the whole of India.

The main provision of the Act are as follows:

Section 2:Clarity on several definitions and terms

used in the context of foreign exchange.

Section 3:Prohibits dealing in Foreign Exchange

Section 4 Holding of foreign Exchange

Section 5 Current account Transaction

Section 6 : Capital account TransactionSection 7: Export of Goods and Services

Section 8 : Realisation of Repatriation and Foreign

Exchange


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Case study: Kites

Allegations:

1. Used foreign exchange meant for production

work to meet personal expenses

2. Carried junk film reels from India for the

shoot but used fresh reels bought in the US

3. Paid Spectrum Entertainment just $ 4.3

million against pending bills of $ 5.9 million


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Background of case

Production budget of Rs. 60 crore

Sold for Rs. 110 crore in worldwide rights to

the Reliance Group

Film shot in Maldives, Mexico and the US

Spectrum Entertainment hired by Roshan to

manage all outdoor shoots of Kites in the US

Reels were bought in US and cost Roshan Rs.

50 lakhs


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evaluation

1. The production house is gaining tax benefits

showing personnel expenditure as creative

expenses

2. Evaded duty on Reels, bought from US, when

returned to India

3. Spectrum has all the challans of withdrawals

by Roshan


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conclusions

1. The personal expense, if proved, must only invite

minimal penalty of 3 times the duty evaded

2. Spending of Rs. 50 lakhs in US is violation of

FEMA and can invite penalty of upto 3 times theoriginal amount applicable

3. The Spectrum matter will not be taken up by the

ED without a proper evaluation of the situationbetween the complainant & the Indian

production house


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Rule 3 read with Schedule I:

Prohibited Transactions

Pymt for travel to Nepal and/or Bhutan

Remittance out of income from :- lottery

winnings, or racing/riding etc., or any other

hobby;

Remittance for purchase of :- lottery tickets, or

banned/ prescribed magazines, football pools,

sweepstakes etc. Pymt of comm. on exports made towards equity

investment in JV abroad of Indian Companies


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Rule 4 read with Schedule II:

Transactions with CG Approval

Pymt of imports by a Govt. Deptt. or a PSU onCIF basis

Cultural Tours

Remittance of prize money/ sponsorship ofsports activity abroad > US$ 1,00,000 (norestriction if pymt made by International

/National/ State level Sports Bodies) Pymt for health insurance from a company

abroad


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Rule 5 read with Schedule III:

(if beyond limits)


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Similarities between FERA & FEMA

The Reserve Bank of India and central

government would continue to be the regulatory

bodies.

Presumption of extra territorial jurisdiction asenvisaged in section (1) of FERA has been

retained.

The Directorate of Enforcement continues to bethe agency for enforcement of the provisions of

the law such as conducting search and seizure

C i FERA & FEMA


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Comparison FERA & FEMA

Differences FERA FEMA

Emphasis On regulation of foreign

exchange

On management of foreign

exchange

Situation Stringent controls wererequired on the use of foreign

exchange

Stringent controls are notrequired now

Permission Need to take permission of RBI

in connection with

remittances

No need for seeking the

permission of RBI except in

case of Section 3

Restrictions Restrictions on drawals of

foreign exchange for the

purpose current account

transactions

Section 5 removes all

restrictions on drawals of

foreign exchange

C i FERA & FEMA


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Comparison FERA & FEMADIFFERENCES FERA FEMA

PROVISIONS FERA consisted of 91 sections, and

was more complex

FEMA is much simple, and consist of only 49 sections.

FEATURES Presumption of negative intention

(Mens Rea ) and joining hands in

offence (abatement) existed in FERA

These presumptions of Mens Rea and abatement have been

excluded in FEMA

NEW TERMS IN FEMA Terms like Capital Account Transaction,current Account Transaction, person,

service etc. were not defined in FERA.

Terms like Capital Account Transaction, current accountTransaction person, service etc., have been defined in detail in

FEMA.

DEFINITION OF

AUTHORIZED PERSON

Definition of "Authorized Person" in FERA

was a narrow one ( 2(b)

The definition of Authorized person has been widened to include

banks, money changes, off shore banking Units etc. (2 ( c )

MEANING OF

"RESIDENT"

AS COMPARED WITH I

NCOME TAX ACT.

There was a big difference in the definition

of "Resident", under FERA, and Income Tax

Act

The provision of FEMA, are in consistent with income Tax Act, in

respect to the definition of term " Resident". Now the criteria of

"In India for 182 days" to make a person resident has been

brought under FEMA. Therefore a person who qualifies to be a

non-resident under the income Tax Act, 1961 will also be

considered a non-resident for the purposes of application of

- -

&


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Comparison FERA & FEMAPUNISHMENT Any offence under FERA, was a criminal offence ,

punishable with imprisonment as per code of criminal

procedure, 1973

Here, the offence is considered to be a civil

offence only punishable with some amount of

money as a penalty. Imprisonment is prescribed

only when one fails to pay the penalty.

QUANTUM OF PENALTY. The monetary penalty payable under FERA, was nearly

the five times the amount involved.

Under FEMA the quantum of penalty has been

considerably decreased to three times the

amount involved.

APPEAL An appeal against the order of "Adjudicating office",

before " Foreign Exchange Regulation Appellate Board

went before High Court

The appellate authority under FEMA is the special

Director ( Appeals) Appeal against the order of

Adjudicating Authorities and special Director

(appeals) lies before "Appellate Tribunal for

Foreign Exchange." An appeal from an order of

Appellate Tribunal would lie to the High Court.

(sec 17,18,35)

RIGHT OF ASSISTANCE

DURING LEGAL

PROCEEDINGS.

FERA did not contain any express provision on the right

of on impleaded person to take legal assistance

FEMA expressly recognizes the right of appellant

to take assistance of legal practitioner or

chartered accountant (32)

POWER OF SEARCH AND

SEIZE

FERA conferred wide powers on a police officer not

below the rank of a Deputy Superintendent of Police to

The scope and power of search and seizure has

been curtailed to a great extent


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THANK YOU!!!

Documents

FERA Final[1]Ggg