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FERA and FEMA: Account Transaction

Capital and Current account transaction are held FERA and FEMA.

Under the FEMA regime, the thrust was on regulation and control of the scarce foreign exchange, whereas under the FEMA, the emphasis is on the management of foreign exchange resources.
Under FERA it was safe to presume that any transaction in foreign exchange or with a non-resident was prohibited unless it was generally or specially permitted.

FEMA has formally recognised the distinction between current account and capital account transactions.

Current Account Transactions

• Any person may sell or draw foreign exchange to or from an authorized person if such sale or drawl 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 required from time to time.
The definition is inclusive and any expenditure which is not a capital account transaction will be current account transaction. It includes:

• 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
Capital Account Transactions

• "capital account transaction" means 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 like:
– Changes in Assets/ Liabilities
– Transfer/ issue of security
– Borrowing/ Lending
– Export, import or holding of currency or currency notes
– Giving guarantee

• Capital Account Transaction are deemed to be prohibited unless permitted and Current Account Transactions are deemed to be permitted unless prohibited


“Repatriate to India" means bringing into India the realized foreign exchange and-
• the selling of such foreign exchange to an authorized person in India in exchange for rupees, or
• the holding of realized amount in an account with an authorized person in India to the extent notified by the Reserve Bank,
• It includes use of the realized amount for discharge of a debt or liability denominated in foreign exchange

Manner of Repatriation:-

It can be done in the following manner:

• Sell it to Authorized Person in India in exchange for Rupees
• Retain in an account with an authorized dealer
• Use it for discharge of a debt or liability denominated in foreign exchange in the manner specified by RBI.

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