Difference Between Fera & Fema - Full Form & Act

Difference Between FERA and FEMA - Full Form, Act

26 Sept 2024
By: BlinkX Research Team

To control money flow and project its economy, the Indian government has stringent rules governing foreign exchange. There are two acts the foreign exchange regulation act and the foreign exchange management act to control foreign exchange transactions. Keep reading to understand more about FEMA full form, FEMA act, FERA full form, FERA act, the difference between FERA and FEMA, and more.

What is FERA?

FERA full form stands for Foreign Exchange Regulation Act. In 1973, FERA was introduced to simplify and facilitate the foreign exchange system in India. FERA consists of 81 sections. To stop improper use of foreign exchange and illicit activities of using foreign exchange, FERA was enforced on forex-related transactions such as transfer of funds, converting currencies, purchasing overseas property, and dealing with non-resident individuals.

FERA Act gave authority to the Reserve Bank of India (RBI) to regulate activities concerning foreign exchange. RBI has the authority to seize the asset and impose significant penalties and imprisonment in case of any default or non-compliance. FERA had a significant impact on India’s foreign exchange for many years, establishing a reputation for its stringent enforcement actions.

Table of Content

What is FERA?
What is FEMA?
Structure of FEMA

What is FEMA?

FEMA full form stands for Foreign Exchange Management Act. In 1999, to strengthen India’s foreign exchange structure and administration, FEMA was replaced by FERA. FEMA consists of 49 sections.

With FEMA, the Central Government has powers to regulate the flow of payments to and from a person's situation outside India.
Without the approval of FEMA, all financial transactions regarding foreign securities or exchange cannot be carried out. All transactions involving foreign exchange must be carried out through “Authorized Persons.”
3In the interest of public welfare, the Government of India can restrict an authorized individual from engaging in foreign exchange transactions related to the current account.
Even if conducted by the authorized person, RBI empowers to impose restrictions on transactions from capital accounts.
According to the FEMA Act, Indian residents are permitted to conduct foreign exchange, foreign security transactions, trade foreign securities, or hold and own property abroad if the security, property, or currency was acquired or owned while they were living outside India, or if they inherit property from someone residing outside the country.

Structure of FEMA

Located in New Delhi, the head office of FEMA, also known as the Enforcement Directorate is headed by the director.
Delhi, Mumbai, Kolkata, Chennai, and Jalandhar are the five zonal office locations each office is headed by a Deputy Director.
These 5 zonal offices are divided into 7 sub-zonal offices and 5 field units headed by Assistant Directors and Chief Enforcement Officers respectively.

Differences	FERA	FEMA
Act	FERA Act 1973 was passed by the parliament of India.	FEMA was enacted by the parliament of India to replace FERA.
Enactment year	FERA was introduced in 1973	FEMA was enacted on 20 December 1999
Came into force	FERA came into force on 1 January 1974	FEMA came into force in June 2000
No. of sections	FERA consists of 81 sections	FEMA consists of 49 sections
Objective	FERA was set up to conserve Foreign exchange.	FEMA was set up to increase foreign exchange reserves and promote foreign payments and trade.
Definition of “Authorized Person”	The definition of “Authorized Person” was narrow.	The definition of “Authorized Person” was widened.
Offense	Violation of the FERA Act is then considered a criminal offense.	Violation of the FEMA Act is then considered a civil offense.
Legal Help	There is no legal help for a person accused of the FERA Act violation.	There will be help provided for a person accused of FEMA Act violation.
Provision	For FERA Act Violation, there was no provision for Tribunal instead the appeals were forwarded to high courts.	For FEMA Act Violations, there is a provision for a special director (appeals) and a special tribunal.
Punishment	There was a provision for direct punishment for violating FERA rules.	Guilt under the FEMA Act needs to pay the fine from the date of conviction. In case the penalty is not paid within 90 days, there will be imprisonment.
RBI Approval	Prior approval of RBI is required in case of transferring funds for external operations.	There is no requirement for approval from RBI for external trade and remittances.
Provision of IT	There is no provision for IT	There is a provision for IT

Conclusion
FERA and FEMA are the act that regulates foreign exchange transactions in India. FERA was introduced to regulate and control any foreign exchange transaction whereas FEMA was enacted to streamline and liberalize the process of foreign exchange transactions. These acts ensure that individuals and enterprises dealing with foreign currencies abide by the rules and regulations to avoid any legal repercussions.

FAQs on the difference between FEMA and FERA

FERA was introduced to stop improper use of foreign exchange and illicit activities of using foreign exchange, it was enforced on forex-related transactions such as transfer of funds, converting currencies, purchasing overseas property, and dealing with non-resident individuals. Whereas, FEMA was introduced to regulate the flow of payments to and from a person's situation outside India.

FERA was replaced by FEMA due to restrictive nature of FERA impacted economic growth and foreign investment. FEMA was designed to boost economic growth by offering more favorable policies for investment and trade.

In short, the FEMA was introduced to ease the foreign trade and payment and promote the orderly development and maintenance of foreign exchange market.

Foreign Exchange Regulation Act (FERA) 1973 was newly named or replaced by FEMA (Foreign Exchange Management Act) 1999.

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