FEMA was introduced in 1999 to replace the earlier Foreign Exchange Regulation Act (FERA), which aimed to facilitate smooth foreign exchange flow while preventing unauthorized transactions and maintaining economic stability in India.
It governs various aspects like remittance regulations, investment guidelines, repatriation norms, overseas transactions, compliance requirements, and penalties for violations.
Under FEMA, NRIs can freely remit up to $1 million per financial year from India without RBI approval, invest in Indian assets like real estate, stocks, and bonds with certain conditions, and repatriate dividends, interest income, and capital gains after paying taxes.
NRIs can also open foreign currency accounts abroad, invest overseas with compliance and reporting, and avail foreign borrowings with RBI’s nod.
Strict compliance through annual returns, record-keeping, and seeking approvals where necessary is mandatory, with non-compliance attracting severe penalties like substantial fines and imprisonment.
FEMA replaced FERA to create a more liberal foreign exchange regime aligned with India’s economic growth and global integration, requiring NRIs to stay updated with its evolving rules through professional guidance to avoid pitfalls.
