Current Account Transactions
Under FEMA all the transactions are divided into two categories: (1) Capital Account transactions
(2) Current account transactions
As a general rule all the current account transactions under FEMA are permitted except those specified and all the capital account transactions are prohibited or regulated.
Current Account Transaction
As per Section 2(j) of FEMA “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;
As per section 5 of FEMA
―Any person may sell or draw foreign exchange to or from an authorized person if such sale or drawal is a current account transaction:
Provided that 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.‖
In exercise of the power conferred under Section 5 and Section 46 of FEMA the central government in consultation with RBI have framed Foreign Exchange Management (Current Account Transactions) Rules, 2000 as notified by the Government of India vide Notification No. G.S.R.381 (E) dated 3rd May 2000 (Rules). In terms of the said Rules, drawal of foreign exchange for certain categories of transactions as listed in Schedule I is expressly prohibited. Exchange facilities for transactions included in Schedule II to the Rules may be permitted by the Authorised Dealer banks provided the applicant has secured the approval from the Ministry/Department of the Government of India as specified therein. In respect of transactions included in Schedule III, prior approval of the Reserve Bank would be required for remittance exceeding the specified limits. The release of foreign exchange up to the threshold ceilings specified in Schedule III stands delegated to
the Authorised Dealer banks. All applications for release of foreign exchange exceeding the limits as prescribed in Schedule III to the Rules should be referred to the Regional Office concerned of the Foreign Exchange Department of the Reserve Bank, under whose jurisdiction the applicant is functioning / residing.
