{"id":22580,"date":"2021-01-23T07:13:32","date_gmt":"2021-01-23T07:13:32","guid":{"rendered":"https:\/\/www.legalraasta.com\/blog\/?p=22580"},"modified":"2026-04-07T17:16:36","modified_gmt":"2026-04-07T11:46:36","slug":"foreign-exchange-regulations","status":"publish","type":"post","link":"https:\/\/www.legalraasta.com\/blog\/foreign-exchange-regulations\/","title":{"rendered":"Foreign Exchange Regulations"},"content":{"rendered":"<p>The foreign exchange regulations have been changed over the years to help the payment of funds both in and out of India.<\/p>\n<p>There have been many changes in the regulations over the period of time in line with the economic liberalization of the Indian economy.<\/p>\n<p>Still, in some cases, specific approvals are needed from the regulatory authorities for foreign exchange transactions\/payments.<\/p>\n<p>The Foreign Exchange Management Act officially came into existence on 1<sup>st<\/sup> June 2000. Thus the forex market in India is operated by RBI and the arrival of The Foreign Exchange Management paved the path for the introduction of the Prevention of Money Laundering Act (PMLA) of 2002.<\/p>\n<p>The foreign exchange regulations in India are regulated by the Foreign Exchange Management Act, 1999 (\u201cFEMA\u201d). The highest foreign exchange regulatory authority in India is the Reserve Bank of India (\u201cRBI\u201d) which makes the law and is responsible for all major approvals.<\/p>\n<p>FEMA is applicable to all parts of India and it is also applicable to all offices, offices and set-ups outside India which are owned or operated by an individual who is a citizen of India.<\/p>\n<p>It is also applicable to all branches, offices and set-ups in India which are run or owned by a person who is a resident outside India. FEMA regulates all aspects of foreign exchange and has direct involvement in external trade and payments.<\/p>\n<p>FEMA also impacts foreign nationals who are working inside or outside of India.<\/p>\n<p>FERA \u2013 the four-letter acronym for Foreign Exchange Regulation Act is a codification that was introduced\u00a0 in 1973 with the purpose to rule the\u00a0 dealings in foreign exchange, enforce restrictions on specific payments and to keep an eye on the transactions impinging the foreign exchange and the import and export of currency.<\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_73 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.legalraasta.com\/blog\/foreign-exchange-regulations\/#Salient_Features_of_FERA\" title=\"Salient Features of FERA:\">Salient Features of FERA:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.legalraasta.com\/blog\/foreign-exchange-regulations\/#FERA_VS_FEMA_A_comparison\" title=\"FERA VS FEMA: A comparison\">FERA VS FEMA: A comparison<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.legalraasta.com\/blog\/foreign-exchange-regulations\/#Acquisition_of_property_under_FERA_and_FEMA\" title=\"Acquisition of property under FERA and FEMA\">Acquisition of property under FERA and FEMA<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.legalraasta.com\/blog\/foreign-exchange-regulations\/#Objectives_of_Foreign_Exchange_Regulations\" title=\"Objectives of Foreign Exchange Regulations\">Objectives of Foreign Exchange Regulations<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.legalraasta.com\/blog\/foreign-exchange-regulations\/#Exchange_Rate_Policy_Of_India\" title=\"Exchange Rate Policy Of India\">Exchange Rate Policy Of India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.legalraasta.com\/blog\/foreign-exchange-regulations\/#What_is_transfer_pricing\" title=\"What is transfer pricing?\">What is transfer pricing?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.legalraasta.com\/blog\/foreign-exchange-regulations\/#Country_wise_Reporting\" title=\"Country wise Reporting\">Country wise Reporting<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.legalraasta.com\/blog\/foreign-exchange-regulations\/#Practical_Steps_for_Country_to_Country_Reporting\" title=\"Practical Steps for Country to Country Reporting\">Practical Steps for Country to Country Reporting<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.legalraasta.com\/blog\/foreign-exchange-regulations\/#Which_MNEs_are_required_to_file_CBC_Report\" title=\"Which MNE\u2019s are required to file CBC Report ?\">Which MNE\u2019s are required to file CBC Report ?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.legalraasta.com\/blog\/foreign-exchange-regulations\/#Necessary_conditions_for_obtaining_and_using_CBC_Report\" title=\"Necessary conditions for obtaining and using CBC Report\">Necessary conditions for obtaining and using CBC Report<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Salient_Features_of_FERA\"><\/span><strong>Salient Features of FERA:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>FERA is applicable to all the citizens of India, the intention of making FERA was to conserve the foreign exchange resources of the nation. <strong>Some of the key features of the act are as follows:<\/strong><\/p>\n<ul>\n<li>It is authorized by RBI to any person\/company to deal in foreign exchange<\/li>\n<li>It is authorized for the dealers by the Reserve Bank of India for making payments in foreign currencies, subject to review and revoking the authorisation in any case of non-compliance<\/li>\n<li>It also gives authorization to the money changers for conversion of currencies as per the rates determined by RBI<\/li>\n<li>Restricting import\/export of currencies<\/li>\n<li>Restricting the people other than the authorised dealers from getting involved in transactions involving the financial currency<\/li>\n<li>Restrictions on issue of bearer securities<\/li>\n<li>Restrictions on containing or holding any immovable properties outside India<\/li>\n<li>It also restricts making\/receiving payment to\/from a resident outside India<\/li>\n<li>The RBI has the power to request information and seize records, wherever or whenever possible.<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"FERA_VS_FEMA_A_comparison\"><\/span><strong>FERA VS FEMA: A comparison<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>FERA is the Act of the Parliament introduced in the year 1973, with the intention of managing and conserving India\u2019s foreign reserves.<\/p>\n<p>The Foreign Exchange Management Act (FEMA) is an extension to the already existing law. The intention behind the validation of FEMA was not only to regulate and help foreign exchange but also for helping the increment of foreign trade and payments along with increasing the size of foreign exchange reserves in India. Made public in the year 1999, FEMA, unlike the former law, liberalised the foreign exchange controls and restrictions on foreign investments to a very big extent.<\/p>\n<p>Not only this, but FEMA also gave attention to the systematic development and proper management of the forex market in the country.<\/p>\n<p>Not like FERA, the violation of FEMA is a complex offence, the charges of which can be removed.<\/p>\n<p>Except this, there are different punishments for breaking the laws of FERA and FEMA.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Acquisition_of_property_under_FERA_and_FEMA\"><\/span><strong>Acquisition of property under FERA and FEMA<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>There is a major difference between FERA and FEMA concerning the purchase of property in India.<\/p>\n<p>While according to FERA, \u201ccitizenship&#8221; was the criteria for obtaining\u00a0 property; under FEMA it is the \u201cresidence\u201d which is the criteria.<\/p>\n<p>This means that under the laws of FERA, a person who is an Indian citizen could obtain property in India and a foreign citizen could not obtain\u00a0 property in India (except as permitted to NRI\u2019s).<\/p>\n<p>However, according to FEMA, an Indian resident can obtain property in India which is otherwise not permitted to the non-residents. Precisely, FEMA has emerged as a replacement or improvement over the former FERA.<\/p>\n<p>Moreover, a foreign company that has its branch office or another place of business in India, as per the rules of\u00a0 FERA\/FEMA, can acquire immovable property in India that is incidental or secondary to carrying on such activity.<\/p>\n<p>To conclude, anything and everything that was associated with Foreign Exchange was regulated under the Foreign Exchange Regulation Act.<\/p>\n<p>And though the laws were made for the benefits of the citizens of India, it obstructed the growth of Indian Industries owing to its excessively stringent restrictions.<\/p>\n<p>However, with the introduction of FEMA, the scenario changed soon, from control to management along with helping the development and management of the foreign exchange market in India.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Objectives_of_Foreign_Exchange_Regulations\"><\/span><strong>Objectives of Foreign Exchange Regulations<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The objective of regulation is to ensure fair and ethical business demeanor. In their turn all foreign exchange brokers, investment banks and signal sellers have to work in acceptance with the rules and standards made or laid down by the Forex regulators.<\/p>\n<p>Generally, they must be registered and licensed in the country where they work.<\/p>\n<p>Brokers having a license may be subject to repeated audits, reviews and assessments to check that they meet the industry standards.<\/p>\n<p>Foreign exchange brokers may have capital requirements that enable them to contain a sufficient amount of funds to be able to conduct and complete their customers&#8217; completed foreign exchange contracts and also to return intact funds to customers in the event of bankruptcy.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Exchange_Rate_Policy_Of_India\"><\/span><strong>Exchange Rate Policy Of India<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>India\u2019s exchange rate policy has evolved in line with the domestic exchange rate policy as well as international developments.<\/p>\n<p>The period after independence was marked by a fixed exchange rate authority, which was in line with the Bretton Woods system prevalent back then.<\/p>\n<p>The Indian Rupee was fixed to the Pound Sterling on account of historic links with Britain.<\/p>\n<p>After the Bretton Woods System was abolished in the early seventies, most of the countries moved towards a system of flexible and managed exchange rates.<\/p>\n<p>Decline in the share of Britain in India&#8217;s trade meant the increase of diversification of India&#8217;s international transactions along with the weaknesses of fixed to a single currency, the Indian Rupee was delinked from the Pound Sterling in September 1975.<\/p>\n<p>The exchange rate later on came to be determined with mention of the daily exchange rate movements of a basket of currencies of India\u2019s major trading partners which was not disclosed.<\/p>\n<p>As the basket-linked management of the exchange rate of the Rupee did not capture how the market worked and the developments in the exchange rates of competing countries fully, the Rupee\u2019s external value was allowed to be fixed by market forces was carried out in gradual manner following the balance of payment difficulties in the nineties.<\/p>\n<p>An important two-step downward adjustment was made in 1991 to the exchange rate of the Rupee. In March 1992, the Liberalised Exchange Rate Management System (LERMS) involving the dual exchange rate was set in motion. A unified single market-determined exchange rate system based on the demand for and supply of foreign exchange was put in place of the LERMS effective on March 1, 1993.<\/p>\n<p>The exchange rate policy of the Reserve Bank emphasizes maintaining orderly conditions in the foreign exchange market.<\/p>\n<p>For that purpose, it closely keeps an eye on the developments in the financial markets at home and abroad. It also intervenes in the market by buying or selling foreign currencies when needed.<\/p>\n<p>The market operations are carried out either directly or through public sector banks.<\/p>\n<p>In addition to the traditional instruments like forward and swap contracts, the Reserve Bank has given facilities that increased availability of imitative instruments in the foreign exchange market.<\/p>\n<p>Trading in Rupee-Foreign Currency Swaps, Foreign Currency-Rupee Options, Cross-Currency Options, Interest Rate Swaps and Currency Swaps, Foreign Rate Agreements and Currency Futures has been made possible.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_is_transfer_pricing\"><\/span><strong>What is transfer pricing?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>A separate code on transfer pricing as mentioned under the Income tax Act (Section 91 to 92F) which covers the international transactions under the section \u201cgroup and specific transactions\u201d.<\/p>\n<p>Thus transfer pricing has become an international tax problem for multinational companies which rely on international transactions.<\/p>\n<p>As a business, you will need to consider these in an agency or a person if you want to hire them for transfer pricing or foreign exchange regulations.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Country_wise_Reporting\"><\/span><strong>Country wise Reporting<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The documentation of Transfer pricing and country wise reporting gives a template to the multinational companies to report on a Yearly basis for each tax jurisdiction in which they do business. This report is known as a Country-by-Country Report (CBC Report)<\/p>\n<p>The CBC Reporting standard gives the multinational companies a package of reporting which may consist model law enactment which can be used by countries which authorize the parent entity of the multinational company to file the CBC report which contains their global allotment of profit, taxes paid, and specific activities of economic indicators in its jurisdiction in which they work and three model skilled authority.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Practical_Steps_for_Country_to_Country_Reporting\"><\/span><strong>Practical Steps for Country to Country Reporting<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Action 13 of OCED lays the guidance note on execution of Documentation of Transfer Pricing and country by country reporting<\/p>\n<p>Timing : Requirement for CBC Reporting<\/p>\n<ul>\n<li>The Multinational entities need to file the CBC report annually in the fiscal year starting from 1 January.<\/li>\n<li>The key element of the legitimate requirement needs the ultimate parent entity of the multinational company group to file the CBC report on timely basis<\/li>\n<li>The MNE fiscal year is related to the combined reporting period for financial statement purposes and not to taxable years or to the financial reporting periods of.<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Which_MNEs_are_required_to_file_CBC_Report\"><\/span>Which MNE\u2019s are required to file CBC Report ?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><strong>All MNE\u2019s group need to file the CBC Report Except the following-<\/strong><\/p>\n<p>Some MNE\u2019s group with annual combined income of the group in the immediate previous fiscal year is less than 750 million \u20ac or equivalent to the amount in domestic currency are generally exempted from this.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Necessary_conditions_for_obtaining_and_using_CBC_Report\"><\/span><strong>Necessary conditions for obtaining and using CBC Report<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Countries participating in OECD\/G20 BEPS project need to agree to the following conditions for obtaining and using the CBC Report:<\/p>\n<ul>\n<li><strong><u>Confidentiality<\/u><\/strong><\/li>\n<\/ul>\n<p>Authorities should maintain and enforce legal protections against the given\u00a0 information.<\/p>\n<p>Such precautions will help preserving the confidentiality of the CBC report which is equivalent to the protection that would imply that such information is sent to the country under the laws of Multilateral Convention on Mutual Administrative Assistance in Tax Matters, a TIEA or a tax treaty that meets the internationally agreed standard of information upon request as reviewed by the Global Forum on Transparency and Exchange of Information for Tax Purposes CBC Report Template as it helps the authority to judge the high level transfer pricing risk and also evaluate other BEPS related risk.<\/p>\n<ul>\n<li><strong><u>Consistency<\/u><\/strong><\/li>\n<\/ul>\n<p>Authorities should use the modern template as mentioned in Annex III of Chapter V of the Transfer Pricing guidelines which enables the authorities not to ask for either additional information nor will it fail to obtain the information which is needed as per Annex III.<\/p>\n<ul>\n<li><strong><u>Appropriate Use<\/u><\/strong><\/li>\n<\/ul>\n<p>Authorities should rightly use the information received from the MNE\u2019s in the CBC report template which will help them to evaluate high level transfer pricing problems and also evaluate the BEPS related risks.<\/p>\n<ul>\n<li><strong><u>End to End transfer Pricing<\/u><\/strong><\/li>\n<\/ul>\n<p>As transfer pricing acceptance is usually a matter of senior tax professionals, the work of carrying out the inter company transactions are spread across a broad chain of internal functions and distant offices.<\/p>\n<p>The process of transfer pricing execution involves multiple hands on taxation, divisional controller, shared common services, information technology etc.<\/p>\n<p>If unified oversight is absent, unsound conditions can develop at every transaction point such as vagueness of responsibility, manual or informal practices, accounting policies, data mismatch, not efficient way for pacification etc.<\/p>\n<p>These conditions expose the MNE\u2019s to major risks , increase in compliance requirement\u00a0 inefficiencies which may lead to frustration and breakdown of the execution chain.<\/p>\n<blockquote><p><strong>We provide all kinds of legal services like \u201c<a href=\"https:\/\/www.legalraasta.com\/income-tax-return\/\">Income Tax Return<\/a>, <a href=\"https:\/\/www.legalraasta.com\/trademark-registration\/\">Trademark Registration<\/a>, <a href=\"https:\/\/www.legalraasta.com\/company-registration\">Company Registration<\/a>, <a href=\"https:\/\/www.legalraasta.com\/fssai-license\/\">FSSAI License<\/a> \u00a0and many more. So, contact the expert team of \u201cLegalRaasta\u201d, for a completely smooth and hassle free process.<\/strong><\/p><\/blockquote>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The foreign exchange regulations have been changed over the years to help the payment of funds both in and out of India. There have been many changes in the regulations over the period of time in line with the economic liberalization of the Indian economy. Still, in some cases, specific approvals are needed from the regulatory [&hellip;]<\/p>\n","protected":false},"author":15,"featured_media":22583,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-22580","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Foreign Exchange Regulations | FERA vs FEMA | Objectives<\/title>\n<meta name=\"description\" content=\"The foreign exchange regulations have been changed over the years to help the payment of funds both in and out of India.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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