FOREIGN DIRECT TRADE
& INVESTMENT
UNIT 2
Foreign Exchange Management (Permissible
Capital Account Transactions) Regulations, 2000
• Meaning Of Capital account transactions - Section 2(e) [FEMA]
Capital account transaction’ means any transaction –
- Which alters the assets or liabilities position outside of PRI
- Which alters the assets or liabilities in India of the PROI
• Capital account transactions – Section 6 [FEMA]
- Capital account transactions are governed by Foreign Exchange
Management (Permissible Capital Account Transactions) Regulations, 2000
- Capital account transactions are allowed subject to certain conditions.
- RBI in consultation with the Central Government, specify any class or classes
of capital account transactions permissible and the limit up to which foreign
exchange shall be admissible for such transactions.
- Reserve Bank shall not impose any restrictions on the drawal of foreign
exchange for payments due on account of amortization of loans or for
depreciation of direct investments in the ordinary course of business.
• Rule 3- Permissible Capital Account Transactions -
(1) Capital account transactions of a person may be classified under the
following heads, namely:
• (A) transactions, specified in Schedule I, of a person resident In India;
• (B) transactions, specified in Schedule II, of a person resident outside India.
(2) Subject to the provisions of the Act or the rules or regulations or direction
or orders made or issued thereunder, any person may sell or draw foreign
exchange to or from an authorised person for a capital account transaction
specified in the Schedules;
Provided that the transaction is within the limit, if any, specified in the
regulations relevant to the transaction.
• Rule 4- Prohibition
1) no person shall undertake or sell or draw foreign exchange to or from an authorised
person for any capital account transaction, Provided that -
a) subject to the provisions of the Act or the rules or regulations or directions or orders
made or issued thereunder, a resident individual may, draw from an authorized person
foreign exchange not exceeding USD 250,000 per financial year or such amount as
decided by Reserve Bank from time to time for a capital account transaction specified in
Schedule I.
b) Where the drawal of foreign exchange by a resident individual for any capital account
transaction specified in Schedule I exceeds USD 250,000 per financial year, or as decided
by Reserve Bank from time to time as the case may be, the limit specified in the
regulations relevant to the transaction shall apply with respect to such drawal. provided
further that no part of the foreign exchange of USD 250,000, drawn under proviso (a) shall
be used for remittance directly or indirectly to countries notified as non-cooperative
countries and territories by Financial Action Task Force (FATF) from time to time and
communicated by the Reserve Bank of India to all concerned.]
2) no person resident outside India shall make investment in India, in any form,
in any company or partnership firm or proprietary concern or any entity,
whether incorporated or not, which is engaged or proposes to engage -
(i) in the business of chit fund, or
(ii) as Nidhi Company, or
(iii) in agricultural or plantation activities or
(iv) in real estate business, or construction of farmhouses or
(v) in trading in Transferable Development Rights (TDRs).
Rule 5- Method of payment for investment - The payment for investment shall
be made by remittance from abroad through normal banking channels or by
debit to an account of the investor maintained with an authorised person in
India in accordance with the regulations made by the Reserve Bank under the
Act.
Rule 6. Declaration to be furnished - Every person selling or drawing foreign
exchange to or from an authorised person for a capital account transaction
shall furnish to the Reserve Bank, a declaration in the form and within the time
specified in the regulations relevant to the transaction.
Schedule – I
Classes of Capital Account Transactions of Persons resident in India
a) Investment by a person resident in India in foreign securities.
b) Foreign currency loans raised in India and abroad by a person resident in India.
c) Transfer of immovable property outside India by a person resident in India.
d) Guarantees issued by a person resident in India in favour of a person resident outside India.
e) Export, import and holding of currency / currency notes.
f) Loans and overdrafts (borrowings) by a person resident in India from a person resident outside
India.
g) Maintenance of foreign currency accounts in India and outside India by a person resident in India.
h) Taking out of insurance policy by a person resident in India from an insurance company outside
India.
i) Loans and overdrafts by a person resident in India to a person resident outside India.
j) Remittance outside India of capital assets of a person resident in India.
k) Undertake derivative contracts
Schedule - II
Classes of Capital Account Transactions of Persons resident Outside India
a) Investment in India by a person resident outside India, that is to say,
i) issue of security by a body corporate or an entity in India and investment therein by a person
resident outside India; and
ii) investment by way of contribution by a person resident outside India to the capital of a firm or a
proprietorship concern or an association of persons in India.
b) Acquisition and transfer of immovable property in India by a person resident outside India.
c) Guarantee by a person resident outside India in favour of, or on behalf of, a person resident in
India.
d) Import and export of currency / currency notes into / from India by a person resident outside
India.
e) Deposits between a person resident in India and a person resident outside India.
f) Foreign currency accounts in India of a person resident outside India.
g) Remittance outside India of capital assets in India of a person resident outside India.
h) Undertake derivative contracts
Foreign Exchange Management (Current Account
Transactions) Rules, 2000
• Current account transactions - Section 2(j) [FEMA]
current account transaction means a transaction other than a capital account transaction. Current
account transactions include payments in connection with –
- payments due in connection with foreign trade, other current business, services, and short-term
banking and credit facilities in the ordinary course of business, payments due as interest on loan
- net income from investments
- remittances for living expenses of parents, spouse and children residing abroad
- expenses in connection with foreign travel, education and medical care of parents, spouse and
children
• Current account transactions.— Sec 5 [FEMA]
Any person may sell or draw foreign exchange to or from an authorised 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.
• 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 or Bhutan
Provided that the prohibition in clause (c) may be exempted by RBI subject to such term and
conditions as it may consider necessary to stipulate by special or general order.
• Rule 4- Prior approval of Govt. of India - No person shall draw foreign exchange for a transaction
included in the Schedule II without prior approval of the Government of India.
Provided that this Rule shall not apply where the payment is made out of funds held in Resident
Foreign Currency (RFC) Account.
• Rule 5- Prior approval of Reserve Bank.-Every drawal of foreign exchange for transactions
included in Schedule III shall be governed as provided therein :
Provided that this rule shall not apply where the payment is made out of funds held in Resident
Foreign Currency (RFC) Account
• Rule 6- Exemption for Drawal from Exchange Earners' Foreign Currency
(EEFC) Account:
- Drawals made out of funds held in an Exchange Earners' Foreign Currency
(EEFC) account of the remitter are exempt from the restrictions imposed
under Rule 4 or Rule 5.
- However, restrictions imposed under Rule 4 or Rule 5 continue to apply if the
drawal from the EEFC account is for specific purposes listed in Schedule II or
Schedule III which is specified in items 10 and 11 of Schedule II, or item 3, 4, 11,
16 & 17 Schedule III .
• 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.
• Schedule – I [Transactions which are Prohibited]
1. Remittance out of lottery winnings,
2. Remittance of income from racing / riding etc. or any other hobby,
3. Remittance for purchase of lottery tickets, banned / proscribed magazines, football
pools, sweepstakes etc.,
4. Payment of commission on exports made towards equity investment in Joint
Ventures / Wholly Owned Subsidiaries abroad of Indian companies,
5. Remittance of dividend by any company to which the requirement of dividend
balancing is applicable,
6. Payment of commission on exports under Rupee State Credit Route, except
commission up to 10% of invoice value of exports of tea and tobacco.]
7. Payment related to "Call Back Services" of telephones,
8. Remittance of interest income on funds held in Non Resident Special Rupee Account
Scheme.
• Schedule – II [Transactions which require prior approval of the Central Government]
Prior approval of the Central Government is required for drawl of foreign exchange by any person for the
purposes listed below –
- Cultural tours
- Advertisement in foreign print media for the purposes other than promotion of tourism, foreign
investments and international bidding (exceeding US$ 10,000) by a State Government and its PSU
- Payment of import through ocean transport by a Government Department of a PSU on CIF basis
- Multi-modal transport operators making remittance to their agents abroad
- Remittance of hiring charges of transponders
(a) TV Channels (b) Internet service providers
- Remittance of container detention charges exceeding the rate prescribed by Director General of Shipping
- Remittance of prize money or sponsorship of sports activity abroad by a person other than International
or National or State Level sports bodies, if the amount involved exceeds US$ 1,00,000
- Remittance for membership of Protection & Indemnity Insurance Club.
• Schedule 3
• Provided that for the purposes mentioned at item numbers (iv), (vii) and (viii), the individual
may avail of exchange facility for an amount in excess of the limit prescribed under the
Liberalised Remittance Scheme if it is so required by a country of emigration, medical
institute offering treatment or the university, respectively :
• Provided further that if an individual remits any amount under the said Liberalised
Remittance Scheme in a financial year, then the applicable limit for such individual would
be reduced from USD 250,000 (US Dollars Two Hundred and Fifty Thousand Only) by the
amount so remitted :
• provided also that for a person who is resident but not permanently resident in India and
(a) is a citizen of a foreign State other than Pakistan; or
(b) is a citizen of India, who is on deputation to the office or branch of a foreign company or
subsidiary or joint venture in India of such foreign company, may make remittance up to his
net salary (after deduction of taxes, contribution to provident fundand other deductions)
• Facilities for persons other than individual -
2. The following remittances by persons other than individuals shall require prior approval of the
Reserve Bank of India.
(i) Donations exceeding one per cent. of their foreign exchange earnings during the previous three
financial years or USD 5,000,000, whichever is less, for-
(a) creation of Chairs in reputed educational institutes,
(b) contribution to funds (not being an investment fund) promoted by educational institutes; and
(c) contribution to a technical institution or body or association in the field of activity of the donor
Company.
(ii) Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in
India exceeding USD 25,000 or five percent of the inward remittance whichever is more.
(iii) Remittances exceeding USD 10,000,000 per project for any consultancy services in respect of
infrastructure projects and USD 1,000,000 per project, for other consultancy services procured from
outside India.
(iv) Remittances exceeding five per cent of investment brought into India or USD 100,000 whichever is
higher, by an entity in India by way of reimbursement of pre-incorporation expenses."
