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Current Account Transactions under FEMA Act, 1999

Current Account Transactions under FEMA Act, 1999

Section 5 of the Foreign Exchange Management Act, 1999 contains provisions regarding Current Account Transactions.

Any person may sell or draw foreign exchange to or from an authorized person if such sale or drawal is a current account transaction.

The Central Government may, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions for current account transactions as may be prescribed.

 Definition of Current Account Transactions

“Current account transaction” means a transaction other than a capital account transaction and without prejudice to the generality of the foregoing such transaction includes,-
(i) Payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business,

(ii) Payments due as interest on loans and as net income from investments,

(iii) Remittances for living expenses of parents, spouse and children residing abroad, and

(iv) Expenses in connection with foreign travel, education and medical care of parents, spouse and children;

Foreign Exchange Management (Current Account Transactions) Rules, 2000

The prohibitions and restrictions regarding Current Account Transactions are contained in Foreign Exchange Management (Current Account Transactions) Rules, 2000.

Rule 2(b) defines “Drawal” as drawal of foreign exchange from an authorized person and includes opening of Letter of Credit or use of International Credit Card or International Debit Card of ATM Card or any other thing by whatever name called which has the effect of creating foreign exchange liability;

Rule 3 – Prohibition on drawal of foreign exchange

Drawal of foreign exchange by any person for the following purpose is prohibited, namely:-

(a) a transaction specified in the Schedule I; or –

(b) a travel to Nepal and/ or Bhutan; or

(c) a transaction with a person resident in Nepal of Bhutan :

The prohibition in clause (c) may be exempted by Reserve Bank of India subject to such term and conditions as it may consider necessary to stipulate by special or general order.

Rule 4 – Prior approval of Government of India

No person shall draw foreign exchange for a transaction included in the Schedule II without prior approval of the Government of India. This rule shall not apply where the payment is made out of funds held in Resident Foreign Currency (RFC) Account of the remitter.

Rule 5 – Prior approval of Reserve Bank

Every drawal of foreign exchange for transactions included in Schedule III shall be governed as provided therein. This rule shall not apply where the payment is made out of funds held in Resident Foreign Currency (RFC) Account of the remitter.

Rule 6 – Payment from EEFC Account

Nothing contained in rule 4 or rule 5 shall apply to drawal made out of funds held in Exchange Earners’ Foreign Currency (EEFC) account of the remitter.

Notwithstanding anything contained in sub-rule (1), restrictions imposed under rule 4 or rule 5 shall continue to apply where the drawal of foreign exchange from the Exchange Earners Foreign Currency (EEFC) account is for the purpose specified in items 10 and 11 of Schedule II, or item 3, 4, 11, 16 & 17 Schedule III as the case may be.

Rule 7 – Use of International Credit Card while outside India

Nothing contained in rule 5 shall apply to the use of International Credit Card for making payment by a person towards meeting expenses while such person is on a visit outside India.

Current Account Transactions under FEMA Act, 1999

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