💱 Foreign Exchange

FEMA 1999

Foreign Exchange Management Act — facilitates external trade, promotes orderly development of foreign exchange markets, and regulates cross-border capital transactions in India.

1999Year Enacted
RBIAdministering Body
EDEnforcement Directorate
FEMA RulesSupplementary Rules
Overview

Current Account vs Capital Account Transactions

FEMA replaced FERA (1973) and shifted the approach from criminal penalties to civil penalties for most violations. It classifies transactions into current account (largely free) and capital account (RBI regulated).

Section 5

Current Account Transactions

Generally permitted without RBI approval — trade payments, travel expenses, education abroad, maintenance of relatives. Subject to LRS limits and documentation requirements.

LRS

Liberalised Remittance Scheme

Resident individuals can remit up to USD 250,000 per financial year for permissible current and capital account transactions (investments, education, travel, gifting).

Schedule I

FDI — Foreign Direct Investment

Inward investment by non-residents in Indian entities. Two routes: Automatic Route (no prior approval) and Government Route (approval required for sensitive sectors).

ODI Rules

Overseas Direct Investment

Indian residents/companies investing abroad. Automatic route: up to 400% of net worth of Indian entity. Financial commitment beyond this requires RBI approval.

Key Provisions

FDI Sector Caps & Restrictions

1
Automatic Route Sectors
▼
Most sectors allow 100% FDI under Automatic Route including: IT, manufacturing, auto, aviation (except Air India), construction, hotels, SEZs, food processing. No prior government or RBI approval needed — only post-facto reporting (FC-GPR form) required.
2
Government Approval Route
▼
Prior government approval required for: Defence (beyond 74%), Broadcasting (26-49%), Print media (26%), Satellite channels (49%), Lottery, gambling, chit funds. Applications processed through DPIIT/MHA depending on sector.
3
FEMA Reporting Requirements
▼
  • FC-GPR: Report FDI received within 30 days of allotment of shares
  • FC-TRS: Transfer of shares between resident and non-resident within 60 days
  • APR: Annual Performance Report for ODI — by December 31 every year
  • FCGPR / FCTRS: Filed through authorised dealer (AD) bank on FIRMS portal
4
Penalties & Compounding
▼
Civil penalties up to 3x the amount involved or ₹2 lakh, whichever is higher. Continuing contraventions attract additional ₹5,000 per day. Compounding — voluntary settlement of contraventions — available before RBI/ED adjudicating authority. Preferred route to close violations before they escalate.
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