FEMA 2024: Analyzing New Amendments to Foreign Exchange Management Act

The Foreign Exchange Management Act (FEMA) of 1999 serves as the backbone of India’s foreign exchange regulation. In 2024, significant amendments were introduced to improve compliance processes, increase transparency, and align India's financial regulations with global standards. Let's delve into the key amendments to FEMA 2024.

1. Foreign Exchange (Compounding Proceedings) Rules, 2024

The Foreign Exchange (Compounding Proceedings) Rules, 2024, notified through G.S.R. 566 (E) on September 12, 2024, replace the previous 2000 rules. These rules regulate the compounding of contraventions under FEMA, excluding Section 3(a).

Authorities and Their Powers

The authority to compound contraventions depends on the amount involved:

Authority	Up to Rs. 5 Lakh	Rs. 5 Lakh to Rs. 10 Lakh	Rs. 10 Lakh to Rs. 1 Crore	Above Rs. 1 Crore
RBI Officers	AGM or Higher	DGM or Higher	GM or Higher	CGM or Higher
DOE Officers	Deputy Director	Additional Director	Special Director	Director with Special Director

Key Provisions

• Application Format: Applications must be submitted using the prescribed form with a fee of Rs 10,000 + GST.

• Processing Time: Decisions must be made within 180 days.

• Opportunity to be Heard: Applicants are allowed to present their case.

• Payment Deadline: The compounded amount must be paid within 15 days via approved electronic methods.

• Non-Compoundable Cases: Includes cases involving money laundering, terrorism financing, or matters affecting national security.

2. Foreign Exchange Management (Deposit) Regulations, 2024

The Fourth Amendment to FEMA Deposit Regulations brings flexibility for non-residents participating in India’s financial markets.

Key Highlights

• Non-residents can open interest-bearing accounts in Indian Rupees or foreign currencies.

• These accounts may be used to post and collect margins for derivative contracts.

• Compliance with the Foreign Exchange Management (Margin for Derivative Contracts) Regulations, 2020, is mandatory.

3. Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2024

This amendment introduces Schedule XI to facilitate direct listing of Indian companies on international exchanges.

Key Provisions

• Payment for equity purchases must be made through authorized banking channels.

• Sale proceeds may be remitted abroad or retained in permissible accounts.

• Companies must report transactions to the RBI through Authorized Dealers.

4. Foreign Exchange Management (Foreign Currency Accounts) Regulations, 2024

Amendments to Regulation 5 allow Indian residents to hold funds in foreign currency accounts for funds raised through:

• External Commercial Borrowings (ECBs)

• American Depository Receipts (ADRs)

• Global Depository Receipts (GDRs)

• Direct listing of equity shares on international stock exchanges

These accounts are subject to compliance with conditions outlined for these methods.

5. Foreign Exchange Management (Non-Debt Instruments) Amendment Rules, 2024

The amendment introduces the Direct Listing of Equity Shares of Companies Scheme under Schedule XI.

Eligibility Criteria for Companies and Shareholders

Criteria	Companies	Shareholders
Not under investigation	Must not be under investigation	Must meet the same criteria as companies
Regulatory Compliance	Must comply with sectoral caps and norms	Similar compliance requirements
Prohibited Activities	Prohibited sectoral investments are disallowed	Shares must be in dematerialized form
Government Approval	Prior approval where applicable	Prior approval if necessary

6. Reporting of Foreign Exchange Transactions to Trade Repository

The RBI expanded the scope of reporting to the Trade Repository (TR) managed by the Clearing Corporation of India Ltd. (CCIL).

Reporting Timeline

Transaction Type	Start Date	Threshold
Inter-bank FX Contracts	February 10, 2025	No threshold
Client FX Contracts	May 12, 2025	Above $1 million
Client FX Contracts	November 10, 2025	Above $50,000

7. Directions to IBUs for Foreign Currency Accounts (FCA) Under LRS

The International Financial Services Centres Authority (IFSCA) now permits Indian residents to open Foreign Currency Accounts (FCA) under the Liberalised Remittance Scheme (LRS).

Permitted Transactions

• Receipt of remittances under LRS from India and abroad.

• Deployment of funds for approved purposes.

• Prohibited from domestic transactions between residents.

8. Updates to the Liberalised Remittance Scheme (LRS)

The RBI has introduced changes to the reporting framework for LRS under FEMA.

• Monthly LRS Returns Discontinued: Effective September 2024.

• Daily Reporting: AD Category-I banks must report daily transaction details using the Sankalan platform.

• Compliance: Banks must maintain accurate records and submit 'NIL' reports when necessary.

9. Instructions on Money Changing Activities

From July 1, 2024, Full-Fledged Money Changers (FFMCs) and non-bank Authorized Dealers (ADs) face new regulations.

Compliance Requirements

• FFMCs must sell at least 75% of foreign currency purchased to the public.

• Maintain detailed records for audits.

• Discouraged from holding idle reserves.

Conclusion

The amendments to FEMA in 2024 aim to streamline compliance, enhance transparency, and foster India's integration with global financial systems. Companies and individuals engaging in foreign exchange transactions must stay updated to ensure adherence to these revised regulations.

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Article Compiled by:-

~Mayank Garg

(LegalMantra.net Team)

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc.

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