Difference Between FERA and FEMA

  • Blog|FEMA & Banking|
  • 2 Min Read
  • By Taxmann
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  • Last Updated on 17 November, 2022

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Formulation of FEMA:

FERA was mainly formulated to deal with deep crunch of foreign exchange post world war II and hence was a rigid piece of legislation which have left all the businesspeople and Indian citizens at the mercy of Enforcement Directorate as violence of FERA was considered a criminal act and there were major penalties associated with it.

FEMA or Foreign Exchange Management Act was introduced in the year 1999 to replace FERA (Foreign Exchange Regulations Act). FEMA came into act on 1st of June 2000. The Scope and Objective of FEMA was mainly to amend the laws related to foreign exchangeto facilitate external trade and payments and to develop the foreign exchange market in India. 
 
FEMA was a liberal from of its prior version (FERA). It extends to whole of the country. It introduced resident ship in place of citizenship. FEMA is more human and natural in nature and removed all kinds of restrictions on withdrawal of foreign exchange. FEMA also introduced RFC (Resident foreign currency account). It specifically deals with possession and retention of foreign currency and includes all kinds of foreign securities and immovable property.
 

Comparison between FERA and FEMA:

The main differences between FERA and FEMA – FERA was compiled with 81 different and complex provisions however FEMA have only 48 simple sections to it.

 Current account was not defined under FERA however it was introduced in FEMA.
FEMA have more widened definition of “Authorized Person” and have also included banks in it.
Compatibility with IT was not at all dealt with under FERA however FEMA have provision for IT.
Under FERA, its violation was a criminal offence which was changed to civil offence in FEMA.
Under FERA, the appeal used to be sent to High Court however FEMA had provision of Special Director (Appeals) and Special Tribunal. Under FERA, no help was extended to the accused however as per section 32 of FEMA, the accused have right to get help of a legal practitioner. FERA was set up with main objective of conservation of foreign exchange however FEMA was set up with main objective of management of foreign exchange. FERA was formulated with an assumption that foreign exchange is a scarce resource and hence must be protected and used with great care however FEMA was formulated with assumption that foreign exchange is an asset and must be properly managed. Under FERA only authorized dealers and money changers were defined as Authorized Persons however under FEMA even offshore banking units were included in this definition.
Conclusion:
 
FEMA do not view outflow of foreign exchange as an evil act however it rather works to factor it out to manage the process of foreign exchange. It aims to manage foreign exchange more efficiently rather than conserving it. It applies general asset management rules in foreign exchange management and aims at optimizing it rather than maximizing it. It promotes more liberal form of economy.
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