Difference Between FERA and FEMA - Full Form, Act
- 26 Sept 2024
- By: BlinkX Research Team
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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.
