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Foreign exchange in India was regulated by the Foreign Exchange Regulation Act, 1973, with an objective of preservation and appropriation of assets related to foreign exchange. However, this act was repealed, and for the management and administration of foreign exchange in India, the Foreign Exchange Management Act, 1999, was introduced, and with it, many changes were also introduced like transactions were divided into capital account and current account transactions. Foreign exchange is essential in various ways. People traveling abroad for tourism or educational purposes require foreign exchange to conduct transactions in the respective countries. Foreign Exchange Management Act also regulates the possession of foreign currency in India, and the Reserve Bank of India (RBI) makes laws on buying and selling of foreign exchange.
Foreign exchange includes any type of convertible currency issued by central banks situated outside India. It may be deposits and credit balances payable in foreign currency, Demand Drafts, traveler’s cheque, letter of credit, bills of trade drawn in Indian Rupees, but payable in foreign currency. Foreign currency may also be in the form of coins. Possession and retention of money have been prescribed under the Foreign Exchange Management (Possession and retention of foreign currency) Regulations 2000. It means to hold money in physical form. It doesn’t cover the money that is in electronic form.
There is a limit under which foreign currency can be held by a person in India; however, an authorized dealer who deals with foreign exchange has no such limit. He can maintain the foreign currency of various countries. A person can possess foreign currency in coins without any limit, but an Indian resident has certain restrictions on the amount of foreign currency, which is not in the form of coins, to be possessed and retained. Only authorized dealers can deal with foreign currencies under the FEMA.
The Government of India and the RBI has prescribed the limit for possession of foreign currency in India. It is limited to US$2000 and not only to American dollars but also to other foreign currencies of different countries. Such amount of foreign currency must have been acquired from the services rendered by the person outside India. Foreign currency in the form of gifts to a person can be possessed. If such foreign currency is from an organization, then also the person shall be allowed to retain and maintain foreign currency. The foreign currency carried by a person into India who comes from a foreign country can bring foreign currency notes or traveler’s cheque, not exceeding US$ 10,000 or its equal value. Travelers may buy foreign currency up to US$2000. However, there are certain exceptions to the possession of foreign currency.
In a case where foreign exchange regulations are breached by an individual, then he would be liable for penalty under Foreign Exchange Management Act, which would require him to pay equal to thrice the amount involved or up to two lakhs where the amount is not quantifiable. Under FEMA, the penalty would be considered as civil, whereas under Conservation of Foreign Exchange and Prevention of Smuggling Activities, 1974 (COFEPOSA) violating foreign exchange activities would attract criminal provisions. COFEPOSA Act deals with the violation of the foreign exchange regulations and prevents smuggling activities. Astringent regulation on foreign exchange in India would deter offenders from engaging in illegal activities.
Possession of foreign currency in India
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