FERA stands for Foreign Exchange Regulation Act while FEMA is Foreign Exchange Management Act. if you are a foreign investor dealing in India, then I am sure you must have come across these terms. But what is FERA and FEMA? I am going to explain that to you in this answer so stick around.
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FEMA is basically an act which facilitates external trades and payments. The act focuses on orderly management of foreign exchange in the country. On the other hand FERA is an act to regulate payments and foreign exchange in India. Let us learn what is the difference between FERA and FEMA in the table below:
| FERA | FEMA |
Stands for Foreign Exchange Regulation |
Stands for Foreign Exchange Management Act |
Came into force in 1974, repealed in 1998 by Vajpayee government |
Came into force in 2000 |
It was brought in place to regulate foreign exchange and payments in India |
It was brought to do away with strict rules on foreign exchange |
It is said that the rules in this act were restrictive and conservative |
Therefore, FEMA is said to be more flexible |
Under FERA the citizenship of individual was based on their residential status |
The residential status under FEMA was determined based on the individual’s stay in India for at least 6 months |
Offence under FERA was a criminal offence hence a defaulter would face imprisonment |
Offence under FEMA is considered civil offence and the punishment comes in monetary penalty |
I hope what is FERA and FEMA is quite clear now.
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I recently came across the term FERA and FEMA. IAs I wasn’t aware of what is FERA and FEMA, it got me curious about their impact on India’s economy. During my research, I found both are introduced to regulate foreign exchange. However, they differ in approach. FERA, enacted in 1973, was strict and restrictive, while FEMA replaced it in 2000 to create a more flexible and modern system for foreign trade and transactions.
FERA vs FEMA Difference
Let’s check out the differences between Foreign Exchange Regulation Act and Foreign Exchange Management Act.
What is FERA?
FERA, or the Foreign Exchange Regulation Act, was introduced in 1973. It aimed to conserve foreign exchange and regulate transactions related to foreign exchange. Here are the primary objectives of FERA:
Regulating foreign exchange and securities dealings.
Controlling imports and exports of currency.
Managing transactions indirectly affecting foreign exchange.
FERA has 81 sections, and violations are treated as criminal offenses, often resulting in imprisonment. Because of its rigid nature, it was replaced by FEMA.
What is FEMA?
FEMA, or the Foreign Exchange Management Act, was enacted in 2000 to replace FERA. It provided a more growth-friendly framework for foreign exchange management. Here are a few key features of FEMA:
Facilitating external trade and payments.
Introducing transparent and flexible guidelines.
Treating violations as civil offenses, typically resulting in monetary fines.
FERA strict, with 81 sections and criminal penalties for violations. However, FEMA is liberal, with 49 sections and civil penalties, and promotes trade. Both acts contributed to foreign exchange regulation, but FEMA’s flexibility better suited India’s growing economy.
I hope you understand the FEMA vs FERA difference.
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I was recently researching about FERA VS FEMA, for my UPSC exam. It was during this time that I got the above-mentioned answer. I am really happy and grateful to Mr. Josh, for his informative answer. His answer helped me a lot.
However, I would like to add a few more points on the FERA and FEMA difference, in the table below, kindly go through it and I would really appreciate it if anyone could add to this,
| FERA | FEMA |
No legal assistance will be offered to a person suspected of violating the FERA. |
Anyone charged with violating FEMA will receive legal assistance. |
Because there was no provision for a tribunal, appeals were referred to the High Courts. |
There is provision for a Special Director (Appeals) and a Special Tribunal. |
There was a provision for direct punishment for anyone who broke FERA rules. |
Those found guilty of violating FEMA guidelines must pay a fee beginning on the day of conviction; if the payment is not paid within 90 days, the offender will be imprisoned. |
If funds are to be transferred for external operations, the Reserve Bank of India (RBI) must first approve the request. |
The Reserve Bank of India does not require prior authorisation for external trade and remittances (RBI). |
There is no provision for IT. |
There is a plan in place for IT. |
When it comes to property purchases in India, there is a significant difference between FERA and FEMA.
While "citizenship" was the criterion for gaining property under FERA, it is now "residence" that is the criterion under FEMA.
This means that a person who is an Indian citizen can gain property in India, whereas a foreign citizen cannot (except for the NRIs).
According to FEMA, an Indian resident can gain property in India that non-residents are not entitled to obtain. FEMA, in particular, has developed as a successor or enhancement over FERA.
As we are aware from the previous answer, the Foreign Exchange Regulation Act governed everything related to foreign exchange.
Despite the fact that the rules were enacted for the benefit of Indian residents, they hampered the growth of Indian industries due to their extremely harsh limitations.
However, with the implementation of FEMA, the situation quickly shifted from control to management, as well as assisting in the development and management of India's foreign exchange market.
I hope this helps you with your query about FERA vs FEMA:)
Learn the legal violation rules of FERA and FEMA, from the legal experts at NoBroker.
What is FERA and FEMA?
Janvi
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2021-11-10T16:02:11+00:00 2021-11-12T14:41:11+00:00Comment
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