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May 30, 2023
All Articles by: Mr.†M. GOVINDARAJAN       View Profile
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Current Account transactions

Section 2(j) of Foreign Exchange Management Act, 1999 (‘Act’ for short) defines the expression ‘current account transaction’ as a transaction other than a capital account transaction.  The expression ‘capital account transaction’ is defined under Section 2(e) of the Act as a transaction which alters the assets or liabilities, including contingent liabili­ties, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and includes transactions referred to in sub-section (3) of section 6;

Section 5 of the Act provides that 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.

The following transactions shall be included in the list of current account transactions-

  • 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 loans and as net income from investments;
  • remittances for living expenses of parents, spouse and children residing abroad, and
  • expenses in connection with foreign travel, education and medical care of parents, spouse and children.


The Central Government in exercise of the powers conferred by Section 5 and Sub-section (1) and clause (a) of Sub-section (2) of Section 46(2)(a)(1) of the Act and in consultation with the Reserve Bank, the Central Government made the ‘Foreign Exchange Management (Current Account Transaction) Rules, 2000 (‘Rules’ for short) which came into effect from 01.06.2000.


Rule 3 provides that the drawal of foreign exchange by any person for the following purpose is prohibited-

  • a transaction specified in the Schedule I as detailed below-
  • Remittance out of lottery winnings.
  • Remittance of income from racing/riding, etc. or any other hobby.
  • Remittance for purchase of lottery tickets, banned/ prescribed magazines, football pools, sweepstakes, etc.
  • Payments of commission on exports made towards equity investment in joint ventures/wholly owned subsidiaries abroad of Indian companies.
  • Remittance of dividend by any company to which the requirement of dividend balancing is applicable.
  •  Payment of commission of exports under Rupee State Credit Route, except commission up to 10% of invoice value of exports of tea and tobacco.
  • Payment related to "Call Back Services" of telephones.
  • Remittance of interest income on funds held in Non-Resident Special Rupee (Account) Scheme; or
  • a travel to Nepal and/ or Bhutan; or
  • a transaction with a person resident in Nepal of Bhutan.  This prohibition may be exempted by Reserve Bank of India (RBI for short) subject to such term and conditions as it may consider necessary to stipulate by special or general order.

Prior Approval of Central Government

Rule 4 provides that no person can draw foreign exchange for a transaction included in the Schedule II without prior approval of the Government of India.  The transactions included in Schedule II and the authorities from whom the prior approval is to be obtained are as below-

  • Cultural Tours - Ministry of Human Resource Development (Department of Education and Culture);
  • 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 Public Sector Undertakings - Ministry of Finance, Department of Economic Affairs.
  • Remittance of Freight of vessel chartered by a PSU - Ministry of Shipping Transport, (Chartering Wing)
  • Payment of import through ocean transport by a Government Department or a PSU on c.i.f. basis (i.e., other than f.o.b. and f.a.s. basis) - Ministry of Shipping Transport, (Chartering Wing)
  • Multi-modal transport operators making remittance to their agents abroad - Registration Certificate from the Director General of Shipping.
  • Remittance of hiring charges of transponders by TV Channels and Internet Service Providers - Ministry of Information and Broadcasting;
  • Remittance of prize money/sponsorship of sports activity abroad by a person other than International/National/State Level sports bodies, if the amount involved exceeds US$ 1,00,000 - Ministry of Human Resource Development, (Department of Youth Affairs and Sports)
  • Remittance for membership of P&I Club - Ministry of Finance (Insurance Division).

This rule shall not apply where the payment is made out of funds held in Resident Foreign Currency (RFC) Account of the remitter.

Prior Approval of RBI

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.

Schedule III

Facilities for individuals

Every individual can avail foreign exchange facility for the following transactions within the limit of US$ 2,50,000/-

  • Private visits to any country (except Nepal and Bhutan).
  • Gift or donation.
  • Going abroad for employment.
  • Emigration.
  •  Maintenance of close relatives abroad.
  • Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up.
  • Expenses in connection with medical treatment abroad.
  • Studies abroad.
  • Studies abroad.
  • Any other current account transaction.

If the above said transaction exceeds the limit, any additional remittance in excess of the said limit shall require prior approval of the Reserve Bank of India.


By: Mr.†M. GOVINDARAJAN - May 30, 2023


Discussions to this article


Greetings Sir,

If both the buyer and seller are located in India i.e. both parties are in DTA -

i) Is the seller allowed to raise an invoice in FCY?

ii) Is the buyer allowed to make payment in FCY for such invoice raised?

If yes, are they allowed to purchase FCY from an authorised person for the purpose of payment? Alternatively, if FCY cannot be purchased - assuming the buyer holds an EEFC account - can the balances be utilised to make payment to the seller?

Asking the above question as I do not see a specific prohibition for payment in FCY for a DTA->DTA sale. Can such a sale be considered under "other current business"?

My question is not from a GST angle but only to understand the permission/prohibition in FEMA.

Thank you.

By: Siddharth S
Dated: August 26, 2023

Hello Sir,

May I seek your guidance on my query?

By: Siddharth S
Dated: September 26, 2023


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