FEMA – Foreign Exchange Management Act

The Foreign Exchange Management Act (FEMA) came into force on 1st June 2000 to regulate aspects relating to foreign exchange. FEMA was brought as a replacement to the Foreign Exchange Regulation Act (FERA). The Government started the liberalization process for the Indian economy in 1991 and this increased the pace of foreign exchanges in India, thereby resulting in many exchange reserves. This led to the cancellation of FERA and to the introduction of FEMA. In this article, we look at various aspects of FEMA in detail.

FEMA Offices

The head office of FEMA is in New Delhi and it has five zonal offices in India. They are situated in Delhi, Mumbai, Kolkata, Chennai, and Jalandhar. These offices are managed by a Deputy Director. Moreover, these zonal offices are further sub-divided into seven sub-zonal offices which are managed by Assistant Directors and five field units that are managed by Chief Enforcement Officers. 

FEMA Objectives

The objectives of FEMA are as follows.

  • To improve all the laws that are related to the foreign exchange to promote external trade and payments.
  • To develop the maintenance of foreign exchange market in India.


The FEMA Act is applicable across the country including all branches, offices, and agencies that are located outside India owned by a resident of India.

Foreign Exchange Regulations

The following are some of the major regulations under FEMA:

  • An individual should not involve in any foreign exchanges or foreign securities for another individual unless he/she is an authorized person.
  • An individual should not make any payments or should not credit any money to an NRI.
  • An individual should not receive any money from an authorized person on behalf of an NRI.
  • An individual should not interfere in any financial transactions in India for an NRI.
  • An individual in India cannot acquire hold, own, possess or transfer any security of immovable property outside India.


If a taxpayer commits any offense under this act, he/she would be indebted to remit a penalty which is equivalent to thrice the amount occurring due to such default, if the amount is quantifiable or a sum of Rs. 2lakhs if the amount is not quantifiable. If the taxpayer continues with his offense, the quantum of penalty extends up to Rs. 5,000 for each day of default.

The concerned authority is also entitled to confiscate currency, security or any other property belonging to the assessee in favor of the Central Government. In addition to it, the officer is empowered to bring back the defaulters foreign exchange earnings to India.

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