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Dealing in foreign exchange [Section 3 of FEMA,1999] - FEMA Ready Reckoner - FEMAExtract Dealing in foreign exchange T h i s section imposes blanket restrictions on the specified transactions. This section applies to PRIIs and PROIs. The purpose of this section is to regulate inflow and outflow of Foreign Exchange through Authorised dealers and in a permitted manner. As per section 3 Save as otherwise provided in this Act, rules or regulations made there under, or with the general or special permission of the Reserve Bank, no person shall- (a) deal in or transfer any foreign exchange or foreign security to any person not being an authorised person ; As per section 2(ze) transfer includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession of lien. Example :- D e a li n g in foreign exchange A PROI comes to India and would like to sell US$ 2,000 to his friend who is resident in India. The friend offers him a rate better than the banks. This cannot be done as it would amount to dealing in foreign exchange. In the pursuance of Section 3(a) of FEMA Act,1999, Any person can buy any foreign exchange in the form of postal orders or money orders . [ NOTIFICATION NO. FEMA 18(R)/2015 RB ] (b) make any payment to or for the credit of any person resident outside India in any manner; Example :- A PROI has an insurance policy in India. He requests his brother in India to pay the insurance premium. This will amount to payment for the credit of non-resident. This is not permitted. (c) receive otherwise through an authorised person , any payment by order or on behalf of any person resident outside India in any manner; Explanation .-For the purpose of this clause, where any person in, or resident in, India receives any payment by order or on behalf of any person resident outside India through any other person (including an authorised person) without a corresponding inward remittance from any place outside India, then, such person shall be deemed to have received such payment otherwise than through an authorised person; Example:- A foreign tourist comes to India and he takes food at a restaurant. He would like to pay US$ 20 in cash to the restaurant. The restaurant cannot accept cash as it will be a receipt otherwise than through Authorised Person. The restaurant will have to take a money changers license to accept foreign currency. (d) enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person. Explanation.- For the purpose of this clause, financial transaction means making any payment to, or for the credit of any person, or receiving any payment for, by order or on behalf of any person, or drawing, issuing or negotiating any bill of exchange or promissory note, or transferring any security or acknowledging any debt. Example :- Tr a n s a c t i o n s c o v e r e d by this sub-section are known as Hawala transactions. An Indian resident gives Rs. 7 0 , 0 0 0 i n cash to an Indian dealer. For this transaction, the brother in Dubai will get US$ 1,000 from a Dubai dealer. The two dealers may settle the transactions later. However, transaction is not permitted.
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