FEMA Current Affairs
The Reserve Bank of India (RBI) has tightened reporting norms for the Liberalised Remittance Scheme (LRS) under which individual can transfer up to US $2,50,000 abroad in a year. The purpose of tightening of norms is to improve monitoring and also to ensure compliance with LRS limits.
Currently, the LRS transactions are permitted by banks based on declaration made by remitter. The monitoring of adherence to limit is confined to obtaining such declaration without independent verification, in absence of reliable source of information.
Now under tightened reporting norms, daily reporting system by Authorised Dealer (AD) banks of transactions undertaken by individuals under LRS has been placed, which will be accessible to all the other ADs. It will be mandatory for banks to upload daily transaction-wise information undertaken by them under LRS.
Liberalised Remittance Scheme (LRS)
LRS is facility provided by RBI for all resident individuals including minors to freely remit upto certain amount in terms of US Dollar for current and capital account purposes or combination of both. The scheme was introduced in February 2004 and its regulations are provided under Foreign Exchange Management Act (FEMA), 1999. After it was launched, the LRS limit was US $25,000, but it has been revised in stages consistent with prevailing macro and micro economic conditions. At present, LRS limit for all resident individuals, including minors, is US $2,50,000 (Rs. 1.5 crore) per financial year.
Under LRS, individuals can make remittances for overseas education, travel, medical treatment, maintenance to relatives living abroad, gifting and donations. The remitted money can be used for purchase of shares and property as well. Individuals can also open, maintain and hold foreign currency accounts with overseas banks for carrying out transactions under it.
Restrictions: Under LRS, remittances cannot be used for trading on foreign exchange markets, purchase of Foreign Currency Convertible Bonds issued abroad by Indian companies and margin or margin calls to overseas exchanges and counterparties. Similarly, individuals are not allowed to send money to countries identified as ‘non cooperative jurisdictions’ by Financial Action Task Force (FAFT). It also prohibits remittances to entities identified as posing terrorist risks.
The Reserve Bank of India (RBI) has simplified Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations to make it easier for foreign investors to invest in the country.
It was done by putting all 93 amendments under one notification. The new regulation combines earlier two regulations on foreign investments. They are FEMA 20 (investment in Indian company or partnership or in a limited liability partnership) or FEMA 24 (investment in a partnership firm). It also introduces late submission fee that could allow investor to regularise any contravention due to non-reporting, by paying the fee.
Foreign Exchange Management Act (FEMA)
The Foreign Exchange Management Act (FEMA) was passed by Parliament in 1999 and so far was amended 93 times. It had replaced FERA (Foreign Exchange Regulations Act), 1973 which had become incompatible after economic reforms and pro-liberalization policies of Government.
It aims at facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. It makes offenses related to foreign exchange civil offenses. It enables new foreign exchange management regime consistent with emerging framework of World Trade Organisation (WTO).