TaxFinancial Glossary
FEMA (Foreign Exchange Management Act)
Definition
The principal legislation governing foreign exchange transactions in India, replacing the earlier FERA in 1999. FEMA regulates all cross-border transactions including foreign investment, external commercial borrowings, NRI property purchases, and repatriation of funds. RBI is the enforcing authority.
Why It Matters
Every financial transaction an NRI makes in India is governed by FEMA. Buying property, investing in mutual funds, receiving gifts from Indian relatives, repatriating sale proceeds — all must comply with FEMA provisions. Non-compliance can result in penalties up to three times the contravention amount. NRIs must understand at minimum the LRS limits, permissible investments, and repatriation rules under FEMA.