Foreign Exchange Management Act (FEMA)

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Foreign Exchange Management Act, 1999

• The legal framework for the administration of foreign exchange transactions in India is provided by the Foreign Exchange Management Act, 1999.
• Under the FEMA, which came into force with effect from 1st June 2000, all transactions involving foreign exchange have been classified either as capital or current account transactions.
• Current Account Transactions: All transactions undertaken by a resident that do not alter his / her assets or liabilities, including contingent liabilities, outside India are current account transactions.
• Example: payment in connection with foreign trade, expenses in connection with foreign travel, education etc.
• Capital Account Transactions: It includes those transactions which are undertaken by a resident of India such that his/her assets or liabilities outside India are altered (either increased or decreased).
• Example: investment in foreign securities, acquisition of immovable property outside India etc.

Source: Indian Express