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With the country ushering in the 2nd phase of reforms, the Parliament passed the Foreign Exchange Management
Act (FEMA) 1999, on December 02, 1999, replacing FERA 1973. FEMA was implemented in India w.e.f. 1-6-2000.
Details of certain major departure made from FERA are provided hereunder:

1. The Govt. assumes the role of facilitator and promoters of the economic developments under FEMA.  

2. There were 81 Sections in FERA while FEMA has 49 sections 

3. FERA has Section 56 to deal with prosecutions stipulating a punishment of not less than 6 months and not
more than 7 years in addition to penalty for contravention of its provisions. FEMA holds out no threat of
prosecution and violations shall be treated as a civil offence.

4. Sec. 13 of FEMA provides for a penalty upto three times the amount involved for contravention and if the
amount is not quantifiable, the penalty can go up to Rs. 2 lac. A continuing offence can invite penalty, which
may extend uptoRs 5,000 per day. FERA provided penalty upto 3 times.

5. FEMA defines certain terms such as:

CAPITAL ACCOUNT TRANSACTION: One that alters the assets or liabilities outside India of a person
resident in India or assets or liability in India, of a person resident outside India.
CURRENT ACCOUNT TRANSACTION: Other than a capital a/c transaction and include payments due in
connection with foreign trade, other current business services and short term banking and credit facilities in
ordinary course of business.
EXPORT: Taking out of India to a place outside India, goods and services from India to any person outside India.
SERVICE: Service of any description which is made available to potential users and includes the provision of
facilities in connection with banking, financing, insurance, medical and legal assistance, real estate etc. FEMA
incorporates an inclusive definition of the term 'person' and takes in it any agency, office or branch owned or
controlled by such person. Any person residing in India for more than 182 days during the course of
preceding financial year will be taken as resident in India. The definition also excludes persons going
outside India for taking up employment or for carrying on business outside India and those who go out with the
intention of staying abroad for an uncertain period. A body registered or incorporated in India is deemed resident
in India even if a foreigner or non-resident holds its entire share capital.

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