Quick answer: FEMA, the Foreign Exchange Management Act, 1999, is the law that governs every cross-border money flow in India. It splits transactions into current account (trade, services, salaries) and capital account (investment, loans, property). The RBI writes the operating rules. FEMA took effect on 1 June 2000, replacing the stricter FERA of 1973.
- FEMA is Act No. 42 of 1999.
- Current account transactions are broadly free, while capital account transactions need a permitted route.
- Penalties run up to three times the sum involved, or ₹2 lakh where the amount cannot be quantified.
- New export and import regulations under FEMA took effect on 1 October 2026.
How does FEMA sort a cross-border payment?
By asking one question first: does the transaction change India’s foreign assets or liabilities? If yes, it is a capital account transaction. If not, current account.
| Type | Examples | Rule of thumb |
|---|---|---|
| Current account | Paying for services, export receipts, interest, foreign travel | Allowed through a bank, with listed limits |
| Capital account | Buying shares in an Indian company, foreign loans, property | Only as RBI and government rules permit |
So a service invoice paid from abroad is current account. Buying shares is capital account and falls under the Non-Debt Instruments Rules, which govern foreign direct investment.
The Act’s text on India Code also gives the RBI power, under section 6(6), to regulate a foreign company’s liaison office or branch office. Investigations sit with the Directorate of Enforcement.
What changed under FEMA in 2025-26?
Two things.
First, the FEMA (Export and Import of Goods and Services) Regulations, 2026 came into force on 1 October 2026. SOFTEX is gone. Service exporters now file an Export Declaration Form within 30 days after the month of invoicing, and proceeds must be realised within 9 months of the invoice, or 12 months if invoiced in rupees. The RBI notification FEMA 23(R)/2026-RB carries the text.
Second, Press Note 2 (2026), written into the Non-Debt Instruments Rules on 1 May 2026, eased Press Note 3. Investors from land-border countries with non-controlling beneficial ownership up to 10% can now use the automatic route.
That’s a big change for Asian groups.
How does FEMA apply when you hire through an EOR?
Lightly.
When you pay an Indian EOR’s monthly invoice from abroad, you are buying a service, and that payment lands as an ordinary current account receipt for the EOR. You hold no Indian shares, so there is no capital account filing, no FC-GPR and no annual foreign liabilities return. The EOR’s bank logs the inflow and issues an inward remittance advice.
Open a subsidiary and that changes. Share capital is a capital account inflow. So you report the allotment within 30 days, file the annual return each July and track every later share transfer. Our guide on how to set up a subsidiary in India walks through those steps.
How does Remunance keep FEMA simple for your India hiring?
Remunance employs your team through its own Indian entity, Remunance Services Pvt Ltd, so your side of FEMA is a service payment, nothing more. That model serves 150+ international clients from 22 countries. When you are ready for your own entity, our India subsidiary formation team handles the set-up and the move of staff. Talk to our India market-entry team about which route fits your first year.
What else do people ask about FEMA?
What is the difference between FEMA and FERA?
FERA, the 1973 law, treated foreign exchange breaches as criminal offences. FEMA, in force since 1 June 2000, treats most of them as civil contraventions settled by monetary penalties.
Who administers FEMA in India?
The RBI frames most regulations under the Act and supervises the authorised dealer banks that handle foreign exchange for you, while the Directorate of Enforcement investigates contraventions.
Is paying an Indian EOR from abroad allowed under FEMA?
Yes. Paying for services is a current account transaction, routed through banks with standard purpose codes and no prior approval.