With the introduction of FEMA, the administrative structure was centralized under the Enforcement Directorate, headquartered in New Delhi. The directorate is supported by five zonal offices located in Delhi, Mumbai, Kolkata, Chennai, and Jalandhar, each managed by a Deputy Director. These zonal offices are further divided into seven sub-zonal offices led by Assistant Directors and five field units overseen by Chief Enforcement Officers, ensuring a hierarchical yet distributed enforcement of regulations .

FEMA empowers the Reserve Bank of India (RBI) by allowing it to place restrictions on capital account transactions conducted through authorized individuals. It also grants the Central Government authority to regulate the flow of payments to and from persons situated outside India and restrict certain authorized foreign exchange transactions. This setup provides a structured approach to managing foreign exchange within India's broader economic policies .

FERA was replaced due to its incompatibility with the post-liberalization policies of the Indian government. It was a more restrictive legislation, primarily formulated when India had low forex reserves and required stringent control over foreign exchange. On the other hand, FEMA was introduced to facilitate external trade and payments and enhance the orderly development of the foreign exchange market, aligning more closely with modern economic practices. Additionally, FEMA reclassified all offences as civil rather than criminal, simplifying the regulatory and enforcement framework .

FEMA ensures compliance and control over foreign exchange transactions by granting powers to authorized persons and establishing strict guidelines for their operation. The RBI and Central Government are empowered to set restrictions on payments and transactions. Additionally, violations are subject to specific penalties, fostering a regulatory environment that is both structured and responsive to the needs of foreign exchange management .

FEMA is applicable not only within India but also extends to all offices and agencies located outside India that are owned or managed by Indian citizens. This extraterritorial application ensures comprehensive regulatory oversight over cross-border financial dealings conducted by Indian entities, maintaining the integrity and compliance of transactions beyond domestic boundaries .

The key objectives of FEMA are to facilitate external trade and payments, and to promote the orderly development and maintenance of the Indian foreign exchange market. These objectives align with India's post-1999 economic policies, which aim to liberalize and integrate the Indian economy with the global market, enhancing trade flexibility while ensuring regulatory control over forex activities .

FEMA imposes penalties based on the nature and quantifiability of the contravention. If the contravention's value can be quantified, the penalty can be up to three times the sum involved. For unquantifiable contraventions, a fixed penalty of Rs 2 lakh is imposed. Additionally, in cases of continuing violations, an extra penalty of Rs 5,000 per day can be levied, emphasizing progressive enforcement and deterrence .

Under FERA, offences related to foreign exchange were considered criminal offences, requiring court trials and potentially leading to imprisonments. With FEMA, the legal treatment of offences was significantly relaxed as they were reclassified as civil offences. This change reflected a softer legal stance, focusing more on compliance and penalties rather than criminal prosecution, which aligned with the liberalization of India's economic policies .

FEMA permits Indian residents to conduct foreign exchange transactions related to holding or owning immovable property abroad. This includes property acquired, owned, or inherited when the individual was based outside of India, or when inherited from someone residing outside the country. This policy facilitates the legitimate ownership and transfer of foreign assets for Indian residents, aligning with global practices .

'Authorized Persons' under FEMA are categorized into different types, namely Authorized Dealer - Category I, Category II, Category III, and Full-Fledged Money Changers (FFMC). Each category has specific roles, such as managing all current and capital account transactions, executing non-trade related current account transactions, undertaking foreign exchange transactions, and facilitating foreign exchange for private individuals and businesses. This classification ensures that the regulations are managed by qualified entities with appropriate permissions, differentiating their functions and responsibilities .