Section 1 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 1 tells you where the Foreign Exchange Management Act, 1999 applies, to whom it applies, and when it began. It is short, but sub-section (3) gives the Act a reach beyond India's borders, and that reach is the reason an Indian company's overseas branch or agency cannot ignore it; our FEMA advisory work often starts with exactly this question. This article also explains the handful of drafting terms in section 2 that the rest of the Act leans on.
The Act is called the Foreign Exchange Management Act, 1999 and extends to the whole of India. It also applies to all branches, offices and agencies outside India owned or controlled by a person resident in India, and to a contravention committed outside India by any person to whom the Act applies. The commencement date was left to a notification; the footnote in the copy consulted gives 1 June 2000.
How this explainer reads the Act
This article is based on the consolidated text of the Act consulted (amendments shown up to Act 50 of 2019). Later amendments should be checked before you rely on any provision. The Act is Act No. 42 of 1999, dated 29 December 1999, and its long title describes it as "An Act to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India."
That long title matters for reading. The Act is framed around managing foreign exchange to support trade and payments, and the later sections regulate dealings, holdings, realisation and repatriation with that objective in mind. For the wider picture, see our guide on the introduction to FEMA 1999.
Section 1, sub-section by sub-section
| Sub-section | What it says | What it means in practice |
|---|---|---|
| (1) | The Act may be called the Foreign Exchange Management Act, 1999. | The short title used everywhere, usually shortened to FEMA. |
| (2) | It extends to the whole of India. | No part of the country is outside its extent. |
| (3) | It also applies to all branches, offices and agencies outside India owned or controlled by a person resident in India, and to any contravention committed outside India by any person to whom the Act applies. | Overseas arms of Indian residents are covered, and an act done abroad can still be a contravention. |
| (4) | It comes into force on the date the Central Government appoints by notification in the Official Gazette. | The start date depended on a notification; different dates could be fixed for different provisions. |
Extent: the whole of India (sub-section (2))
Sub-section (2) is a single sentence: the Act extends to the whole of India. There is no carve-out for a State, a Union territory or a special zone in this sub-section. Whether a special regime applies to a particular zone is a separate question answered by other provisions and by the rules and regulations, not by section 1.
Application outside India (sub-section (3))
Sub-section (3) does two things.
First, it makes the Act apply to all branches, offices and agencies outside India that are owned or controlled by a person resident in India. Who counts as a person resident in India is defined in section 2(v), and "person" itself includes any agency, office or branch owned or controlled by that person under section 2(u)(vii). Read together, a resident Indian company that runs an overseas branch cannot treat that branch as a foreign entity for the purposes of the Act. Our separate article on who is a person resident in India walks through that definition.
Second, it applies to "any contravention thereunder committed outside India by any person to whom this Act applies". The words "thereunder" refer back to the Act. The effect is that the place where the act was done does not by itself take it out of the Act, as long as the person is one to whom the Act applies.
Example. Meridian Textiles Private Limited, a company incorporated in India, opens an agency office in a foreign city run by a local manager. Under sub-section (3), the agency is an agency outside India owned or controlled by a person resident in India, so the Act applies to it. The company cannot say that the transactions of the agency happen abroad and are therefore outside the Act.
Commencement (sub-section (4) and its proviso)
Sub-section (4) says the Act comes into force on the date the Central Government appoints by notification. The proviso lets different dates be appointed for different provisions, and says that a reference in any provision to the commencement of the Act is to be read as a reference to the coming into force of that provision. Footnote 1 in the copy consulted records the date as 1st June, 2000, by notification No. G.S.R. 371(E) dated 1st May, 2000. This article states that date only as the footnote gives it.
The drafting terms in section 2 that the whole Act relies on
Section 2 is dealt with clause by clause in separate articles, and our existing post on key definitions under FEMA, section 2 gives the general overview. Here, only the terms that explain how the Act is built are covered.
| Clause | Term | What the Act says |
|---|---|---|
| 2(t) | "notify" | To notify in the Official Gazette; "notification" is read accordingly. |
| 2(x) | "prescribed" | Prescribed by rules made under this Act. |
| 2(zd) | "specify" | To specify by regulations made under this Act; "specified" is read accordingly. |
| 2(z) | "Reserve Bank" | The Reserve Bank of India constituted under sub-section (1) of section 3 of the Reserve Bank of India Act, 1934 (2 of 1934). |
The difference between "prescribed" and "specified" is the key to reading the Act. Where a section says something is prescribed, the detail is in rules made by the Central Government, and section 46 gives the power to make them. Where a section says something is specified, the detail is in regulations made by the Reserve Bank, and section 47 gives that power. A limit, a form or a timeline will therefore almost never be found in the Act itself; this article does not state any, because the Act does not print them.
The authorities named in section 2
Several clauses simply name an officer or body that later sections create:
- Adjudicating Authority (clause (a)): an officer authorised under sub-section (1) of section 16.
- Appellate Tribunal (clause (b)): the Appellate Tribunal referred to in section 18. Footnote 2 shows this clause was substituted by Act 7 of 2017, s. 165, with effect from 26-5-2017.
- Authorised Officer (clause (cc)): an officer of the Directorate of Enforcement authorised by the Central Government under section 37A. Footnote 3 shows it was inserted by Act 20 of 2015, s. 138, with effect from 9-9-2015.
- Competent Authority (clause (gg)): the Authority appointed by the Central Government under sub-section (2) of section 37A, inserted at the same time.
- Director of Enforcement (clause (k)): the Director of Enforcement appointed under sub-section (1) of section 36.
- Special Director (Appeals) (clause (zc)): an officer appointed under section 17. Footnote 1 shows that the section reference was substituted for "section 18" by Act 7 of 2017, with effect from 26-5-2017.
Drafting points to note. Clauses (d), (f) and (s) still define "Bench", "Chairperson" and "Member" by reference to the Appellate Tribunal, although the sections on the composition of the Tribunal are shown as omitted in this copy. The copy keeps those definitions as printed. For the powers of the Director of Enforcement, see our article on the Directorate of Enforcement.
Need help with applying FEMA to your overseas operations?
If your business has a branch, office or agency outside India, or you are unsure whether a transaction done abroad falls under the Act, our FEMA advisory team can review the structure with you. We map each overseas arm to the sections of the Act that reach it and to the rules and regulations that carry the detail.
Key takeaways
- The Act extends to the whole of India (section 1(2)).
- It also applies to branches, offices and agencies outside India owned or controlled by a person resident in India, and to contraventions committed outside India by any person to whom it applies (section 1(3)).
- Commencement was by notification; footnote 1 gives 1 June 2000 (notification G.S.R. 371(E) dated 1 May 2000), and different dates could be fixed for different provisions.
- "Prescribed" means prescribed by rules under the Act; "specified" means specified by regulations under the Act. Details sit in those instruments, not in the Act.
- Check later amendments, because the copy consulted shows amendments only up to Act 50 of 2019.
Read next
- Key Definitions Under FEMA: Section 2
- Section 2: person resident in India and person resident outside India
- Section 3: dealing in foreign exchange and payments to non-residents
- FEMA vs FERA: key differences
Disclaimer: Based on a consolidated text of the Foreign Exchange Management Act, 1999 showing amendments up to Act 50 of 2019, as consulted on 2 October 2026. Limits, forms, timelines and procedures are set by rules, regulations and Reserve Bank directions made under the Act; they change from time to time and are not covered here. Later amendments should be checked. This article is general information, not legal advice; check the official text before acting.