Foreign Exchange Management Act (FEMA)

The Foreign Exchange Management Act (FEMA), 1999 is India's primary legislation governing all foreign exchange transactions, cross-border capital flows, and external commercial activities — replacing the restrictive FERA (Foreign Exchange Regulation Act) of 1973 as part of India's economic liberalisation framework. FEMA is administered by the Reserve Bank of India (RBI) and the Directorate of Enforcement (ED) and treats foreign exchange violations as civil offences rather than criminal acts (unlike FERA's criminal prosecution approach), imposing monetary penalties proportional to the violation. FEMA's framework distinguishes between Current Account transactions (trade in goods and services, which are largely freely permitted) and Capital Account transactions (foreign investment, borrowings, and asset acquisition, which are controlled through a system of permitted and prohibited categories). Key FEMA provisions affecting investors include: the Liberalised Remittance Scheme (LRS — allowing resident individuals to remit up to USD 250,000 per year for permitted purposes), foreign investment regulations for NRIs and FPIs, external commercial borrowing (ECB) guidelines, and Overseas Direct Investment (ODI) regulations for Indian companies investing abroad. For Indian investors, FEMA compliance is directly relevant when investing in international assets, receiving foreign income, maintaining NRE/NRO accounts, and remitting funds abroad for investment or personal purposes.