Current Account Transactions rules & regulations

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Current Account Transactions rules & regulations

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What is a Current Account transaction?

A Current Account Transaction is defined as a forex transaction which is a distinction from a capital account transaction. Such transactions include:

  1. Payments in connection with foreign trade, current business, services, and short-term banking and credit facilities in the ordinary course of business.
  2. Payments made as to interest on loans and as net income from investments
  3. Remittances for living expenses of parents, spouse, and children residing or studying abroad.
  4. Expenses in connection with foreign travel, education, and medical care of parents, spouse, and children.

Any expenditure which is not covered under a Capital Account Transaction is a current account transaction even if the transaction is not defined in one of the above points. This way, the current account transaction is quite inclusive. Some of the current account transactions are restricted by the Central Government as per the Foreign Exchange Management Act of 1999 and FEMA rules for Current Account Transactions of 2000.

Restrictions on Current Account Transactions

Prohibitions: 

The following are the prohibitions mentioned in the FEMA rules for Current Account Transaction of 2000, where the related regulations are not applicable. These are remittances from different scenarios:

Remittances allowed with prior approval from the Government:

Exemption:

There is no requirement of prior approval from the government in case of the payment is made out of the funds held in the Resident Foreign Currency (RFC) Account of the remitter.

Remittances allowed according to the specified limits:

For resident individuals

The resident individuals can avail of a foreign exchange facility only within the defined limit of USD 250,000 for the following purposes:

Drawal means withdrawal of foreign exchange from an authorized person.

For other than individuals

The prior approval of the Apex Bank (RBI) is required in the following scenarios:

Other restrictions

Remittances in any form towards participation in lottery schemes/ fictitious schemes and offers are prohibited under FEMA Act

Bids in Foreign Currency for Projects to be executed in India

A person resident in India is permitted to make or receive payments in foreign exchange, in respect of global bids where the Central Government has authorized such projects to be executed in India.         

Liberalization of Foreign Technical Collaboration Agreements

AD Category-I Bank may permit withdrawal of foreign exchange by persons for payment of royalty and lump-sum payment under technical collaboration agreements without any approval of the Ministry of Commerce and Industry, Government of India.

Remittance for Purchase of Trademark or Franchise in India

AD Category-I Bank may permit drawal (Drawal means withdrawal of foreign exchange from an authorized person) of foreign exchange by the person for the purchase of a trademark or franchise in India without the approval of RBI.

Issue of Guarantee - Import of Service

AD Category-I banks are permitted to issue a guarantee, to secure a direct contractual liability arising out of a contract between a resident and a non-resident, for an amount not exceeding USD 500,000 or its equivalent in favor of a non-resident service provider, on behalf of a resident customer who is a service importer.

 

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