FERA vs. FEMA

The foremost objective of the FERA which is generally known as the Foreign Exchange Regulation Act 1973 (FERA) was to safeguard and anticipation of outflow of foreign exchange because of the presence of the unfavorable arrangement of foreign exchange stability present in India. After checking the regulations of FERA in detail, you will come to know that the most important statute was that all twigs of foreign corporations in India be supposed to switch themselves addicted to the Indian companies and therefore, they had to contribute a minimum of 60 % local equity.

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FERA vs. FEMA 1

Underneath FERA the movement, it was decided that the condition of “organize exchange” or “exchange parameters” should be applied. On the contrary, FEMA stands for Foreign Exchange Management Act which was passed as a bill in Indian Parliament by the government in the year of 1999. The main purpose of this Bill was to join and amend the act concerned to foreign exchange having the principle to smooth the progress of outside trades and payments in accordance with the expansion and preservation of foreign exchange market in India. The main stress of the FEMA is on the “management of exchange”.

The main difference between these two terminologies is their main objective as FERA was made in order to conserve and prevent misuse of foreign exchange. On the other side, FEMA is designed for the prime goal of assisting external trade and payments. The nature of these laws is totally different from each other because the FERA was a draconian police law, but the nature of the FEMA civil law is civil.There is no doubt that the implementation of the laws is vital for every society. But it is more important that the laws must be made in such an exclusive manner that they will be capable of facilitating the majority of the people. When you check the Indian law, you will come to know that two terms are present here which are really confusing known as the FERA and FEMA. That’s why a discussion will be presented in the later lines to elaborate their meaning and differences.

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What is the meaning of FERA?

In the year of 1973, FERA was conceded during the discriminating deficiency of foreign exchange in India. This act directly referred to the functions of Multi-national corporations working in India. The main purpose of FERA was to safeguard and deterrence of mishandling of foreign exchange. In FERA, contravention was declared to be an offense against the law and was non-compoundable. According to FERA, the entire non-banking foreign subdivisions and subordinates having foreign equity over and above 40% must carry out for authorization to set up new accomplishments to acquire shares in present corporations. It was a requirement in FERA to obtain the authorization of RBI with regard to the transfer of funds relating to external operations can be possible.

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What is the meaning of FEMA?

FEMA was passed in 1999 which was replaced in June 2000 with FERA in India. The main objective of announcing the FEMA was to bring a new management regime for foreign exchange consistent with the emerging framework of the World Trade Organization (WTO). The intention of FEMA is to make possible peripheral deals in addition to the payments and continuance of foreign exchange market in India. According to the nature of the FEMA, the violation of this law is a civil offense which is compoundable. The Enactment of FEMA also brought with the prevention of money laundering act 2002 while the older provisions were dropped out in new enactment. The new law has now become essential for the management of foreign exchange instead of its regulation.

Key Differences between FERA and FEMA

  1. Objective of FERA was to conserve and prevent misuse of foreign exchange, whereas FEMA is to assist external trade and payments.
  2. FERA was a draconian police law, whilst FEMA is a civil law.
  3. Under FERA, citizenship was a criterion to conclude the residential status of a person. Though in FEMA, stay in India more than 182 days is the standard to make a decision about residential condition of a person.
  4. As there was a requirement in FERA to obtain authorization of RBI with regard to transfer of funds relating external operations. While in FEMA, there is no requirement in quest of approval from RBI related to remittance with regard to external trades apart from section-3 related with foreign exchange.
  5. In FERA, Restrictions on withdrawals of foreign exchange were for the grounds concerning with current account. On the other hand, in FEMA, Section-5 eliminates all the limitations on withdrawals of foreign exchange for the principle concern with current account dealings.
  6. The FERA was first announced in the year of 1973. The FEMA, on the other hand, was first declared in the year of 1999.

Video Explanation

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