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Key Differences

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Difference Between FERA and FEMA

FERA vs FEMAForeign Exchange Management Act, 1999 (FEMA) emerged as a replacement or say an improvement over the old Foreign Exchange Regulation Act, 1973 (FERA). Foreign investors, frequently hear the terms FERA and FEMA, when they deal with India. As their name specifies, FERA lays emphasis on the regulation of currencies, whereas the FEMA manages foreign exchange, i.e. forex.

The first and foremost difference between FERA and FEMA is that the former requires previous approval of Reserve Bank of India (RBI), whereas the latter does not require RBI’s approval, except when the transaction is related to foreign exchange. Check out this article to know more differences between the two acts.

Content: FERA Vs FEMA

  1. Comparison Chart
  2. About
  3. Key Differences
  4. Conclusion

Comparison Chart

Basis for ComparisonFERAFEMA
MeaningAn act promulgated, to regulate payments and foreign exchange in India, is FERA.FEMA an act initiated to facilitate external trade and payments and to promote orderly management of the forex market in the country.
EnactmentOldNew
Number of sections8149
Introduced whenForeign exchange reserves were low.Foreign exchange position was satisfactory.
Approach towards forex transactionsRigidFlexible
Basis for determining residential statusCitizenshipMore than 6 months stay in India
ViolationCriminal offenceCivil offence
Punishment for contraventionImprisonmentFine or imprisonment (if fine not paid in the stipulated time)

About FERA

Foreign Exchange Regulation Act, shortly known as FERA, was introduced in the year 1973. The act came into force, to regulate foreign payments, securities, currency import and export and purchase of fixed assets by foreigners. The act was promulgated in India when the position of foreign reserves wasn’t satisfactory. It aimed at conserving foreign exchange and its optimum utilisation in the development of the economy.

The act applies to the whole country. Therefore, all the citizens of the country, inside or outside India are covered under this act. The act extends to branches and agencies of the Indian multinationals operating outside the country, which is owned or controlled by the person who is the resident of India.

About FEMA

FEMA expands to Foreign Exchange Management Act, which was promulgated in the year 1999, to repeal and replace the earlier act. The act applies to the whole country and to all the branches and agencies of the body corporate operating outside India, whose owner or controller is an Indian resident and also any violation committed by the person covered under the Act, outside India.

The main objective of the act is to facilitate foreign trade and to encourage systematic development and maintenance of forex market in the country. There are total seven chapters contained in the act which are divided into 49 sections, out of which 12 sections deal with the operational part while the remaining 37 sections cover penalties, contravention, appeals, adjudication and so on.

Key Differences Between FERA and FEMA

The primary differences between FERA and FEMA are explained in the following points:

  1. FERA is an act which is enacted to regulate payments and foreign exchange in India, is FERA. FEMA an act initiated to facilitate external trade and payments and to promote orderly management of the forex market in the country.
  2. FEMA came out as an extension of the earlier foreign exchange act FERA.
  3. FERA is lengthier than FEMA, regarding sections.
  4. FERA came into force when the foreign exchange reserve position in the country wasn’t good while at the time of introduction of FEMA, the forex reserve position was satisfactory.
  5. The approach of FERA, towards forex transaction, is quite conservative and restrictive, but in the case of FEMA, the approach is flexible.
  6. Violation of FERA is a non-compoundable offence in the eyes of law. In contrast violation of FEMA is a compoundable offence and the charges can be removed.
  7. Citizenship of a person is the basis for determining residential status of a person in FERA, whereas in FEMA the person’s stay in India should not be less than six months.
  8. Contravening the provision of FERA may result in imprisonment. Conversely, the punishment for violating the provisions of FEMA is a monetary penalty, which may turn into imprisonment if the fine is not paid on time.

Conclusion

The economic policy of liberalisation was first time introduced in India in the year 1991 that opened gates for foreign investment in many sectors. In the year 1997, the Tarapore Committee recommended changes in the present legislation that regulate foreign exchange in the country. After which FERA was replaced by FEMA in the country.

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Comments

  1. Parveen Shakir says

    November 27, 2018 at 11:01 pm

    helpful for my mba exam thanks…

    Reply
  2. Soniya says

    April 20, 2019 at 9:13 pm

    The FERA and FEMA difference was very clearly discussed here

    Reply
  3. Athira S S says

    August 1, 2019 at 8:35 pm

    It’s very helpful for my study thanks

    Reply
  4. SG tewani says

    August 14, 2019 at 12:04 pm

    Very informative and helpful in understanding the basic difference between the two Acts, well explained, easy to understand.

    Shanker Tewani

    Reply
  5. AK says

    November 28, 2019 at 7:19 pm

    Thank you so much whoever you are, it was really very helpful and informative 🙂

    Reply
  6. Barsha says

    April 6, 2020 at 10:01 am

    Very informative and helpful in understanding the basic difference between FERA and FEMA the two Acts, very well explained.

    Reply
  7. randhir singh rana says

    April 6, 2020 at 10:20 am

    it was very important thank you so much

    Reply
  8. Sophia Britt says

    May 10, 2022 at 2:21 pm

    This is undoubtedly the best thing that I’ve come across today in the internet. It was a long time that I have been thinking on this topic but I couldn’t satiate my quench for knowledge through any post that I read. However, today that I came across your article, I seem to have learnt a lot and I have also gained enough knowledge on this topic. Thanks once again.

    Reply
  9. Omkar.n says

    May 18, 2022 at 4:23 pm

    Really Thanks This is very informative and helpful in understanding the difference between FERA and FEMA.

    Reply

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