Foreign Exchange Remittance Facilities for Individuals | PAPER II – PRINCIPLES & PRACTICES OF BANKING | MODULE A: GENERAL BANKING OPERATIONS

Banker-Foreign Exchange Remittance Facilities for Individuals

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Evolution of FEMA

The Foreign Exchange Management Act (FEMA), 1999 replaced the earlier FERA (Foreign Exchange Regulation Act), 1973. FEMA was enacted to facilitate external trade and payments and to promote the orderly development and maintenance of the foreign exchange market in India. It represents a shift from regulation to management, emphasizing liberalization and decriminalization of foreign exchange laws.

Definitions under FEMA

• Authorized Person: Any person authorized by the RBI to deal in foreign exchange or foreign securities.
• Capital Account Transaction: A transaction that alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or inside India of persons resident outside India.
• Current Account Transaction: Transactions other than capital account transactions including remittances, travel, education, and medical expenses.

Bringing in and Taking out Foreign Exchange

Individuals are permitted to bring in foreign exchange without limit, but amounts exceeding USD 10,000 (or equivalent) must be declared at customs. When taking out foreign exchange, there are caps depending on the purpose of travel under the Liberalized Remittance Scheme (LRS) which allows up to USD 250,000 per financial year for permitted current and capital account transactions.

Inward Remittances

These refer to funds received in India from foreign countries. Inward remittances can be for family maintenance, gifts, donations, business, or NRI deposits. They must be routed through normal banking channels and comply with FEMA and RBI regulations.

Outward Remittances

Outward remittances are funds sent from India to a foreign country. Under the LRS, resident individuals can remit up to USD 250,000 per financial year for permissible purposes such as education, travel, medical treatment, and maintenance of close relatives.

Indo-Nepal Remittance Scheme

This scheme allows remittance from India to Nepal of up to INR 50,000 per individual per transaction. It can be sent via NEFT-enabled bank branches. There is no restriction for inward remittance from Nepal to India.

MCQs (Multiple Choice Questions)

1. FEMA came into effect in which year?
   • A. 1991
   • B. 2000
   • C. 1999
   • D. 2005
   Answer: C
2. What is the maximum limit of foreign exchange that can be brought into India without declaration?
   • A. USD 5,000
   • B. USD 10,000
   • C. USD 15,000
   • D. USD 20,000
   Answer: B
3. Which act did FEMA replace?
   • A. FTA
   • B. FRBM
   • C. FERA
   • D. FRCA
   Answer: C
4. Under LRS, how much can an individual remit per year?
   • A. USD 100,000
   • B. USD 250,000
   • C. USD 500,000
   • D. USD 1,000,000
   Answer: B
5. Which of the following is a capital account transaction?
   • A. Medical expenses
   • B. Education abroad
   • C. Investment in foreign securities
   • D. Family maintenance
   Answer: C
6. What is the purpose of FEMA?
   • A. To control foreign exchange
   • B. To regulate trade
   • C. To facilitate external trade and payments
   • D. To promote foreign aid
   Answer: C
7. Indo-Nepal Remittance Scheme allows transfer up to:
   • A. INR 25,000
   • B. INR 40,000
   • C. INR 50,000
   • D. INR 60,000
   Answer: C
8. Who regulates the foreign exchange market in India?
   • A. SEBI
   • B. Ministry of Finance
   • C. RBI
   • D. Ministry of External Affairs
   Answer: C
9. Which remittances are covered under current account?
   • A. Investments
   • B. Education expenses
   • C. Purchase of foreign property
   • D. Loan to a foreign friend
   Answer: B
10. Inward remittances must be routed through:
    • A. Moneylenders
    • B. Private agents
    • C. Banking channels
    • D. Post offices
    Answer: C
11. Which of the following is NOT a feature of FEMA?
    • A. Decriminalization of offences
    • B. Regulation of foreign exchange
    • C. Promotion of illegal trade
    • D. Liberal approach to forex
    Answer: C
12. The term "Authorized Person" under FEMA includes:
    • A. Any Indian citizen
    • B. Any exporter
    • C. Banks and forex dealers approved by RBI
    • D. Insurance companies
    Answer: C
13. Which of these is a permissible outward remittance?
    • A. Betting
    • B. Donation to political party abroad
    • C. Education abroad
    • D. Purchase of antique items
    Answer: C
14. Under FEMA, the individual sending money abroad must be:
    • A. An NRI
    • B. A foreign national
    • C. A resident Indian
    • D. A government official
    Answer: C
15. Which of the following is allowed under Indo-Nepal Remittance Scheme?
    • A. Sending USD to Nepal
    • B. Sending INR 1,00,000 at once
    • C. Sending INR 50,000 via NEFT
    • D. Sending crypto to Nepal
    Answer: C
16. The Liberalized Remittance Scheme is applicable to:
    • A. Corporates
    • B. Government departments
    • C. Resident individuals
    • D. Trusts
    Answer: C
17. Maximum limit of LRS is fixed by:
    • A. Ministry of Finance
    • B. RBI
    • C. SEBI
    • D. SBI
    Answer: B
18. Bringing in foreign currency without declaration is allowed if:
    • A. Less than USD 5,000
    • B. Less than USD 7,000
    • C. Less than USD 10,000
    • D. Less than USD 12,000
    Answer: C
19. NEFT stands for:
    • A. National Electronic Funds Transfer
    • B. National Emergency Fund Transfer
    • C. New Economic Foreign Transfer
    • D. National Exchange Forex Transaction
    Answer: A
20. Under FEMA, capital account transactions need:
    • A. No approval
    • B. Approval from Income Tax Department
    • C. Approval from RBI
    • D. Approval from Parliament
    Answer: C