Banking General Awareness Tax and Budget Tax and Budget

 

Tax and Budget

 

Tax

Tax is the main source of state income, which is compulsorily paid to the state. Government obtains tax from citizen and spends it on their welfare and common good.

 

Aims of Taxation

At present, the main aim of taxation is not to secure finances for the expenditure, but to reduce the economic inequalities of the income.

Following are the main aims of taxation

• To secure money for expenditure
• Regulation of economy
• Equitable distribution of income

 

Different Types of Tax Policy

At global level, these are many different types of tax policy.

Following are the popular types

Progressive Tax Structure Under this type of tax structure with increasing income, the tax liability of a tax payer increases not only in absolute terms but also as a proportion of his income.

Regressive Tax Structure When with the increasing income, percentage of tax decreases, it is termed a regressive tax of the tax liability of the tax payer.

Proportional Tax Structure The tax structure of an economy is termed as proportional, if the tax liability of a tax payer increases in the same proportion as the increases in his income.

Digressive Tax System Under this type of tax structure, rate of taxation increases with the increase in income upto a limit but the rate of tax remains the same after that limit.

e.g. Upto a income of Rs. 10 lakh the rate of taxation may be different according to varying incomes, but it may remain 30% for income above Rs. 10 lakh.

 

Tax Revenue in India

Tax is a compulsory payment by the citizens to the government to meet the public expenditure. It is legally imposed by the government.

On the tax payer and in no case tax payer can deny to pay taxes to government, can be direct, indirect tax, wealth tax, gift tax etc.,, are example of direct tax and sales tax, excise duty, custom duty etc., are example of indirect tax.

 

Generally, tax is divided into two parts which are as follows

1. Direct tax
2. Indirect tax

 

Principal Direct and Indirect Tax in India

 

Direct Tax	Indirect Tax
Personal income tax	Excise duty
Corporation tax	Custom duty
Wealth tax	Sales tax
Gift tax	Service tax
Land revenue	Value added tax
Professional tax	Passenger tax
Stamp duty and registration charges	Entertainment tax
Securities trade tax	Electricity duty
Banking cash transaction tax	Motor vehicle tax

 

Direct Tax

The direct tax is that, which is borne by the person on whom it is levied. A direct tax cannot be shifted to other person. Direct as well as indirect money burden of the direct tax is on the person on whom the tax is imposed. Impact

of the tax as well as incidence of the tax is on the same person.

Some of the central direct taxes are as follows

 

Income Tax

It is the tax levied directly on the income of the people by the Central Government. This tax is recovered by Income tax department under Central Board of Direct Taxes (CBDT).

 

Gift Tax

The tax is imposed by the Central Government on all donations and gifts over and above the prescribed limits to the family members. However, donation given by the charitable institutions and companies is not covered under gift tax. Cash or gifts from non-relatives is non-taxable up to a value of Rs. 50000 in a year.

 

Corporate Tax

It is levied on the profit of the companies or corporations. It is the latest source of revenue of the government.

 

Wealth Tax

This tax is levied on the net wealth of the individuals. Hindu Undivided family and joint stock companies. It is minor source of revenue of the government, primarily imposed to reduce concentration of wealth in the society.

 

Interest Tax

This tax is imposed on the interest income of the commercial bank on their gross loans and advances. Now, it is not in force in India.

 

Minimum Alternative Tax

To check the theft of Corporate Tax, MAT at a rate of 2.5% was introduced for the first time in year 1997-98. It is applied to that part of company's profit which is not covered under Corporate Tax.

 

Securities Transaction Tax

It is a tax payable in India on the value of securities transacted through a recognised stock exchange. STT was originally introduced in 2004.

 

Indirect Tax

These are those taxes, which have their primary burden or impact on one person, but that person succeeds in shifting his burden on others. Consequently, the final or the real burden of the taxes or the incidence has to be borne by a third person. Some of the central indirect taxes are as follows

 

Excise Duty

These duties are imposed by Central Government on the goods produced within the country except certain goods, on which State Government are empowered to impose tax. These goods includes liquor, drugs, etc.

 

Custom Duty

These duties are imposed on commodities, which are imported or exported from India. In other words, when goods cross the political boundary of country or come from other countries, custom duties are imposed. Like excise duty, custom duty also contribute the government revenue.

 

Service Tax

Comparatively a new concept in India, services tax is a tax imposed on the person, who avails any specified service. Its importance as a sources of revenue has been increasing in recent years. The government is receiving more and more revenue from the service tax.

 

Value Added Tax (VAT)

It is an indirect tax, which is imposed on value added at the various stages of production or value adding. Value added refers to the difference between value of output and value of intermediate consumption. VAT, in fact is the multi-stage sales tax. It is imposed at each stage of production or value adding.

Value added tax = Total sales

• Cost of intermediate consumption

In one of the most large scale reforms of the country's public finances in over past 50 years, India finally agreed to the launch of its much-delayed Value Added Tax (VAT) from 1^st April, 2005. Haryana was the first state to introduce VAT in India from 1st April, 2003 out of 35 States/UTs, 33 have introduced VAT.

 

The Goods and Services Tax (GST)

Goods and Services Tax (GST) is an indirect tax levied when a consumer buys a good or service. India's current tax scenario is riddled with various indirect taxes which the GST aims to subsume with a single pan India comprehensive tax, by bringing all such taxes under a single umbrella. The aims of bill to eliminate the cascading effect of taxes on production and distribution prices on goods and services. Cascading effect of taxes is caused due to levy of different charges by State and union governments separately.

This tax structure raise the tax-burden on Indian products, affecting their prices, and as a result, sales in the international marker. The new tax regime will therefore, help boost exports.

• Central Taxes replaced by GST Bill Central Excise Duty, Additional Duties of Excise and Customs, Special Additional Duty of Customs (sad), Service Tax and Cesses and Surcharges on supply of goods and services.
• State Taxes Subsumed in the GST Bill VAT, Central Sales Tax, Purchase Tax. Luxury Tax Entry Tax; Entertainment Tax, Taxes on advertisements, lotteries, betting, gambling and State Cesses and. Surcharges,

The union Government has set the ambitious target rollout of the GST from 1st April, 2017.

 

Central Value Added Tax. (CENVAT)

It is popularly known as central excise duty. It is duty on the manufacture production of goods in India. The regulatory body is the Central Board to Excise and Customs (CBSE), on agency of the department of revenue, Ministry of Finance in India. It was introduced in year of 2000.

Government evolved a new scheme. 'MOD VAT’ (Modified Value Added Tax). MOD VAT scheme which essentially follow VAT Scheme of taxation.

 

 

Non-Tax Revenue

Non-tax revenue are those receipts, which, are received from sources other than taxes like fees, fines, etc.

Some of the non-tax receipts are as follows

 

• Fee, License and Permit Fee is changed for government services like land registration fee, birth and death registration fee, passport fee, court fee, etc. License and permit are the amount that the government charges for allowing the people perform a given job.
• Escheat It refers to income of state from property, which has no claimant heir in the case, state has the right: over such properly.
• Special Assessment It assessment is that payment which is made by the owners of those properties, whose value has appreciated due to development activities of the government.
• Fines and Penalties Payment, which government receive by the law brakers.
• Income from Public Expenditure Profits earned by the government from public sector enterprises.

 

Contribution of Tax in Public Revenue

 

Tax	Percentage Contribution
Corporate tax	2.1%
Income tax	14 %
Central excise duty	11 %
Custom duty	10%

 

Direct Tax Code

DTC (Direct Tax Code) has been bought in place of income tax Act, 1961. Under DTC the three tax rate prevailing has been kept as it is (10%, 20%, 30%) but tax exemption limit has been raised. Further there is a provision of higher exemption limit for women and the maturity income received from various saving schemes has seen kept out of ambit of tax. The DTC has been already in place and was implemented in mid of financial year 2012-13.

 

Important Tax Related Terms

 

Tax Shifting

Transferring some or all of a tax burden of an entity (such as a subsidiary) to another (such as the parent firm). Tax shift or tax swap is a change in taxation that eliminates or reduces one or several taxes and establishes or increases others while keeping the overall revenue the same.

 

Tax Havens

It is a country or territory, where certain taxes are levied at a low rate or not at all. Individual and/or corporate entities can find it attractive to move themselves to areas with reduced or nil taxation level. This creates a situation of tax competition among government different jurisdiction tend to be havens for different type of taxes and for different categories of people and/or companies. e.g. income tax, wealth tax and corporate tax etc.

 

Tobin Tax

A means of taxing spot currency conversions that was originally suggested by American economist James Tobin (1918-2002). As described by him, the tax involves applying a small charge, of as little or less than 0.1%, on foreign currency transactions to protest countries from exchange-rate volatility caused by short term currency speculation.

 

Tobin Effect

It suggest that nominal interest rates would rise less than one-for-one with inflation because in response to inflation, the public would hold less in money balances and more in other assets, which would drive interest rates down. In other words, an increases in the exogenous growth rate of money increases the nominal interest rate and velocity of money, but decreases the real interest rate.

 

Tax Evasion

It is the illegal evasion of taxes by individuals, corporations and trusts. Tax evasion often entails taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting, such as declaring less income, profits or gains than the amounts actually earned or overstating deductions.

 

Tax Avoidance

It is the legal usage of tax regime to one's own advantage, to reduce the amount of tax that is payable by means that are within the law. Tax shattering is very similar and tax havens are jurisdictions which facilitate reduced taxes.

The term tax mitigation is sometimes used, its original use was by tax advisers as an alternative to the prejorative term tax avoidance.

 

Committees on Tax Reforms

Following are the committees

• Chelliah Committee It was setup in 1991 under Chairmanship of Prof. Raja Chelliah. The committee submitted its report in 1993 and most of the recommendations were included in Budget 1993-94.
• Kelkar Committee It was set up in 2002 by the Central Government, which submitted its report in same year. The committee was headed by Prof. Vijay Kelkar. Its most of the recommendation has been accepted in last decade.
• MK Gupta Committee It was setup in 2012 with the purpose of internalisation of common tax code, under goods and service tax.

 

Other Committees of Tax Reforms

Wanchu Committee                    Direct tax

LK Jha Committee                      Indirect tax

Rekha Committee                       Indirect tax

 

'Sahaf' and 'Sugam' It Forms

The Finance Ministry has introduced simpler income tax return forms Sahaj and Sugam aimed at reducing compliance burden on salaried persons and small businessmen.

Sahaj is for salaried people, Sugam return form is applicable for small businessmen and professionals covered under presumptive taxation.

 

General Anti Avoidance Rules (GAAR)

GAAR was introduced by previous Finance Minister Mr Pranab Mukherjee in his budget speech. GAAR sparked controversy for months. The possibility of tax authority scrutinizing transactions aiming at tax avoidance left FIFs Jittery.

Further GAAR was in controversies again when Vodafone acquiring of Hutchisian came into light tax authorities claimed a loss of Rs. 11000 crore and due on Vodafone. GAAR will help in bringing transparency and efficiency in economic policy making and taxation.

 

Tit-Bits

• Octroi is an indirect tax which is levied by local institutions.
• Vat (Value Added Tax) was first implemented in Germany.
• The relations between tax and its rate is shown by Laffer Curve
• Tax on agricultural income was first charged in Bihar
• E-stamping devotes replacing stamp duty required for payment of registration of properties and documents,

 

Public Finance

The study of government's revenue and expenditure is called as public finance. The boundaries of public, finance in modern times is not limited to ways and means of government income and expenditure only. but it also studies public debt, financial administration and Fiscal Policy of the economy.

Public finance can be divided into five sections which are as follows

• Public Revenue/Income Under the theory of public revenue, we study alternative sources of state income. It discusses and analysis comparative advantages and disadvantages of various forms of revenue and the principles which should govern the choice between them.
• Public Expenditure Under the theory of public expenditure, we deal with various principles, on the basis of which the direction of government expenditure is governed. Theory of public expenditure is a major tool for implementing welfare, growth stabilisation and other policies of the government.
• Public Debt Theory of public debt deals with all the loans and other liabilities of the government and all the principles related with debt.
• Financial Administration All financial activities involving issues of financial administration including public budget, its passing, auditing and similar other matters,
• Economic Stability Under the theory of economic stability, we study various policies and principles of finance to bring economic stability in the country. Fiscal policy of the government is studied under the theory of economic stability.

 

Fiscal Policy

The part of the government policy, which is concerned with raising revenue through taxation and with deciding on the amount and purpose of government spending. Fiscal policy is the means, by which a government adjusts its level of revenue and spending in order to monitor and influence and nation's economy in a mixed economy, a part from the private sector, then is the government, which plays a very important role. The role of the government in promoting economic development came into vogue after ‘The great depression’ and is essentially a Keynesian prescription. Later Dr Parthsarthi Scheme Committee was appointed in this regard to form various guidelines and recommendations for GAAR Policy. Fiscal policy, essentially has a multi-dimensional role. However, in India, in the centre of indicative planning.

It has two major objectives

• Improving the growth performance of economy.
• Ensuring social justice to the people.

It influences growth performance of economy mainly by influencing the resource mobilization and influencing efficiency of resources allocation.

 

Assessment of Government Deficits

Assessment of Government deficits can be done on following basis

• Fiscal Deficit It is the difference between what the government earns and its total expenditure. Fiscal deficit = Revenue receipts (Net tax revenue + Non-tax revenue) + Capital receipts - Total expenditure (Plan and Non-plan)
• Revenue Deficit It is the difference between the revenue receipt on tax and non-tax side and the revenue expenditure. Revenue expenditure is synonymous with consumption and non-development.

Revenue deficit = Revenue expenditure

-Revenue receipts

• Budgetary Deficit It considers only the difference between the total budgeted receipt and the expenditure. It is abolished in 1997.
• Primary Deficit It is the difference between the fiscal deficit and the interest payment. The concept helps in assessing the progress of the government in its fiscal control efforts.

Primary deficit = Fiscal deficit

-Interest payments

• Monetary Deficit It is the borrowing made from the RBI, through printing fresh currency. It is restored, when government cannot borrow from market.

 

Fiscal Responsibility and Budget Management (FRBM) Act, 2003

FRBM Act was passed by the Union Government to provide a legislative control over the fiscal situation of the country, which had deteriorated earlier. The Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act) has been amended as part of the Finance Bill, 2012. It has introduced the concepts to reform the expenditure aspect of the fiscal policy.

 

Effective Revenue Deficit

It excludes from the conventional revenue deficit, grants for the creation of capital assets. This is an important development for the reason that while the revenue deficit of the consolidated 'general government fully reflects total capital expenditure incurred, in the accounts of the centre, these transfers are shown as reserve expenditure.                  

Therefore, the mandate of eliminating the conventional revenue deficit of the centre becomes problematic. With this amendment, the endeavour of the government under the FRBM Act would be to; eliminate the effective revenue deficit.

 

Budget

The budget is an extensive account of the government's finances, in which revenues from all sources and expenses of all activities undertaken are aggregated. The Finance Minister presents the union budget every year in last week of February in the Parliament that contains the Government of India's revenue and expenditure for one fiscal year, which runs from 1st April to 31st March.

 

Types of Budget

Following are the types of budget

 

Traditional Budget

It is a type of budget which uses the income and expenses from the previous year or month to predict the next month or year's budget. A traditional budget is easy to create since it is meant to predict a future period of finances in relation to the previous period. In most cases though, the traditional budget usually ends up being too rigid.

 

Performance Budget

A budget that reflects the input of resources and the output of services for each unit of an organisation. This type of budget is commonly used by the government to show the link between the funds provided to the public and the outcome of these services.

 

Zero-Based Budgeting

It is a method of budgeting in which all budgetary allocations are set to nil at the beginning of a financial year.

 

Outcome Budgeting

This type of budgeting tries to ensure that budget outlays translate into concrete outcomes.

 

Gender Budgeting

It came into being in 2004-05. To contribute towards the women empowerment and removal of inequality based on gender, role of budgeting has been accepted through this step.

 

Other Types of Budget

Following are other types of budget.

 

Budget Deficit

A status of financial health in which expenditures exceed revenue. The term 'budget deficit' is most commonly used to refer to government spending rather than business or individual spending. When referring to accrued federal government deficits, the term 'national debt' is used.

 

Single Budget

When a single budget is made for all departments and programmes it is called a single budget. All items of income and expenditure are included. Single budget is used in UK and USA.

 

Polymer Budget

When different budgets are made for different departments, it is known as polymer budget. This system is prevalent in France, Switzerland., Germany and other countries.

 

Item Based Budget

In this type of budget department wise allocation is not. done. This facilitates funds to be used in any head, but prior permission is to be taken.

 

Supplementary Budget

It is prepared for emergency situations like natural calamities, decrease in revenue etc.

 

Interim Budget

It is prepared in case of special situations like elections, wars, natural calamities, etc. This is valid only for 6 months. Revenues are not specified and only expenditures are specified for financial year.

 

Documents of Union Budget

Mainly there are seven documents

• Budget Receipts
• Budget Summary
• Demand for Grants
• Finance Bill
• Budget Expenditure
• Speech of Finance Minister
• Financial Year Statement

 

Budget Fact File

John Mathai proposed the first Budget of Republic of India in 1950 and also the creation of Planning Commission. (Now, NITI Aayog): Finance Minister Morarji Desai has given Budget for the maximum number of times (10), followed by P Chidambaram who has given 8 budgets.

CD Deshmukh was the first Indian Governor of RBI to have presented the Interim Budget for the year 1951-52.

Mrs Indira Gandhi is the only woman to hold the post of the Finance Minister and to have presented the budget in her capacity as the Prime Minister of India in 1978.

The first such mini-budget was presented by TT Krishnamachari on 30th Nov, 1956, in form of fresh taxation proposals through Finance Bills, demanded by the prevailing domestic and international economic situation. Rail budget has been merged with union budget in 2017-18,

 

Finance Commission

According to Article 280(1) of Constitution, the President appoints a Finance Commission after every 5 yr.

The Finance Commission was appointed 2 yr after the implementation of the Constitution and every 5 yr thereafter.

The President has the power to appoint a new Finance Commission even before the expiry of five years, if he deems it necessary.

The Finance Commission advise the President on following matters

• To determine the basis for the allocation of funds collected from the taxes, which are divisible between the centre and the states.
• To formulate the principles regarding the grants to the states from the centre.
• To continue the agreements made between the Government of India and the states or to recommend changes in them.
• To consider any other financial matter, in the interest of the country, on being notified by the President to do so.

 

On the basis of this arrangement, fourteen Finance Commissions have been setup so far

 

Finance  Commission	Chairman
1st (1951)	MrKC  Niyogi
2nd (1956)	MrKA Santhanam
3rd (1960)	MrAK Chanda
4th (1964)	MrPV Rajamannar
5th (1968)	Mr Mahaveer  Tyagi
6th (1972)	Mr  Brahmanan  da Reddy
7th (1977)	MrJM Shellat
8th (1983)	MrYB Chavan
9th (1987)	MrNKP Salve
10th (1992)	Shri KC Pant
11th (1998)	Professor AM Khusro
12th (2002)	DrC Rangarajan
13th (2007)	DrVijay L Kelkar
14th (2013)	YV Reddy

     

Fourteenth Finance Commission

The Fourteenth Finance Commission constituted under the chairmanship of former RBI Governor YV Reddy. The five-member panel is to submit its report by 31st Oct. 2014. Apart from its recommendations on the sharing of tax proceeds between the centre and the states, which will apply for a 5 yr period beginning 1st April, 2015, the commission has been asked to suggest steps for pricing of public utilites such as electricity and water is an independent manner and also look into issues like disinvestment. GST compensation, sale of non-priority PSUs and subsidies. Besides, the Fourteenth Finance Commission would suggest measures for maintaining a stable and sustainable fiscal environment consistent with equitable growth.

 

Recommendations of 14th Finance Commission

The Government of India on 24th Feb. 2015 accepted recommendations of the 14th Finance Commission for increasing share of States in Central taxes to 42%.

• The Commission recommended increase in the share of States in the Centre's tax revenue from the current 32% to 42%, the single largest increase ever recommended.
• The recommendation will give more power to States in determining how they spend this money (it also correspondingly reduces the fiscal resources available to the Centre).
• 14th Finance Commission, headed by former RBI Governor YV Reddy, has endorsed compensation roadmap for the goods and services tax finalized by the Centre, but has called for an autonomous and independent GST compensation fund.
• In the case of value added tax, compensation was provided to the States for three years, at 100% in the first year, 75% in the second year and 50% in the third year, and the Commission has suggested a similar pattern for GST compensation, but for five years. The government has introduced the Constitution Amendment Bill on GST in Lok Sabha in the previous session. It is hoping to introduce the new tax from April, 2016.

 

Inflation

It is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. Inflation is the percentage change in the value of the Wholesale Price Index (WPI) or.. a year basis.

 

Causes of Inflation

Causes of inflation in India are

• Increase in public expenditure
• Deficit financing
• Erratic agricultural growth
• Agricultural price policy of government
• Upward revision of administered price
• Inadequate rise in industrial production

The main causes or inflation are either excess aggregate demand (economic growth too fast) or cost push factors (supply side factors).

 

Calculation of Inflation in India

Inflation is usually measured based on certain indices. Broadly, there are two categories of indices for measuring inflation i.e. wholesale prices and consumer prices.

Index

An index number is a single figure that shows how the whole set of related variables has changed over time or from one place to another.

Two types of index given below

Wholesale Price Index (WPI) It is the index that is used to measure the change in the average price level of goods traded in wholesale market.

In India, a total of 435 commodities data on price level is tracked through WPI which is an indicator of movement in prices of commodities in all trade and transactions.

Consumer Price Index (CPI) It is a statistical time-series measure of a weighted average of prices of a specified set of goods and services purchased by consumers.

It is a price index that tracks the prices of a specified basket of consumer goods and services, providing a measure of inflation. CPI is a fixed quantity price index and considered by some as a cost of living index.

Under CPI, an index is scaled so that it is equal to 100 at a chosen point in time. so that all other values of the index are in percentage relative to this one.

Till January 2012, in India there were only following four CPIs compiled and released on national level.

They are

1. Industrial Workers (IW) (base 2001)
2. Agricultural Labourer (AL.) (base 1986-87)
3. Rural Labourer (RL) (base WS6-S7) and
4. Urban Non-Manual Employees (UNME) (base 1984-85)

 

House Price Index (HPI) An index that measures The price of residential housing (specially single-family properties), which is polished quarterly by the Federal Housing Finance Agency (FHFA).

Service Price Index (SPI) An index that measure the fluctuation of service value. Indian Government want to launch this index soon.

 

Concepts Related to Inflation,

These are as follows

 

Money Deflation

When the overall price level decreases so that inflation rate becomes negative, it is called deflation. It is the opposite of the often encountered inflation.

 

Monetary Reflation

A Fiscal or Monetary Policy, designed to expand a country's output and curb the effects of deflation. Reflation policies can include reducing taxes, changing the money supply and lowering interest rates.

The term reflation is also used to describe the first phase of economic recovery after a period of contraction.

 

Stagflation

Stagflation, a portmanteau of stagnation and inflation, is a term used in economics to describe a situation where the inflation rate is high, the economic growth rate slows down and unemployment remains steadily high.

It raises a dilemma for economic policy since actions designed to lower inflation may exacerbate unemployment and vice versa.

 

Devaluating of Money

It is decided by the government issuing the currency and unlike depreciation, is not the result of non-governmental activities. One reason a country may devaluate its currency is, to combat trade imbalances.

Devaluation causes a country's exports to become less expensive, making them more competitive on the global market. This in turn, means that imports are more expensive, making domestic consumers less likely to purchase them.

 

Recession

It is a slow down or a massive contraction in economic activities. A significant fall in spending generally leads to a recession. Such a slow down in economic activities may last for some quarters, thereby completely hampering the growth of an economy. In such a situation, economic indicators such as GDP, corporate profits, employments etc., fall.

 

Foreign Exchange Regulation Act (FERA)

It was passed in 1947 which was amended in 1973. The new FERA came into force from 1st Jan, 1974. The objective was the conservation of India's Foreign exchange reserves, judicious use of foreign exchange, using mainly in these sector which require foreign technology.

 

Foreign Exchange Management Act (FEMA)

FERA was repealed in 1998 and Foreign Exchange Management Act (FEMA) was enacted. No unauthorised person would be allowed to deal in foreign exchange.

The authorised person could sell; draw foreign exchange from any authorised person on current account transaction, subject to approval of RBI. RBI has exclusive authority to regulate supply; use of foreign exchange. RBI, if thinks fit at the compelling situation can prohibit use of foreign exchange for any specific purpose.

 

 

Difference between FERA and FEMA

 

FERA	FEMA
FERA was passed in 1947 which was ammended in 1973.	FEMA came in place of FERA from 1998.
FERA deals with foreign exchange regulation,	FEMA deals with exchange management.
In case of FERA, RBI's permission is required,	Exchange dealing in foreign exchanges, no permission is required from RBI.
FERA was old and not up to the current economic situational requirement,	FEMA came out a time when India's foreign exchange position was satisfactory.
FERA gives wide power to enforcement directorate to arrest any person, seize  any document,	FEMA violation will not bring any criminal proceedings. It is a civil offence.

 

Money Laundering

It is the generic term used to describe the process by which criminals disguise the original ownership and control of the proceeds of criminal conduct, by making such proceeds appear to have derived from a legitimate source. The processes by which criminally derived property may be laundered are extensive.