The Foreign Exchange Management Act of 1999 establishes the legal framework for managing foreign exchange transactions in India. All transactions involving foreign currency have been categorized as either capital or current account transactions under the Foreign Exchange Management Act (FEMA), 1999, which went into effect on June 1, 2000. Current account transactions are all activities made by a resident outside of India that do not change his or her assets, liabilities, or contingent obligations. In this article, we will look into Section 5 of FEMA Act, Current Account Transaction, Transactions Permitted under FEMA Act, and Transactions Prohibited under FEMA Act.
In accordance with Section 5 of the FEMA, persons residing in India are free to buy or sell foreign currency for any current account transaction, with the exception of those for which the Central Government has prohibited the Withdrawal of foreign currency. Below are the list of the transactions that are permitted and prohibited under FEMA (Foreign Exchange Management Act). Before going through the list let’s understand “what is Current Account transaction?”
Other than capital account transactions, current account transactions include the following:
The Authorized Dealer will be directed by the transaction’s nature as stated by the sender in Form A2 and will afterwards certify that the remittance complies with any instructions provided from time to time by the Reserve Bank in this regard. The remitter, however, is ultimately responsible for ensuring compliance with the current FEMA laws and regulations.
Yes, the Permanent Account Number (PAN) of the resident person is required for all LRS transactions carried out by Authorized Persons.
No ratings or rules on the calibre of the investment a person may make have been established under LRS (Liberalized Remittance Scheme) of USD 2,50,000. Individual investors are nevertheless obliged to undertake due diligence when making decisions about the investments they want to make.
Only capital account transactions are subject to FEMA limits. Transactions on a current account are free unless there are stated limitations. If the sale or withdrawal involves a current account transaction, anyone may sell or withdraw foreign currency to or from an authorized person. In the public interest, the Central Government may impose reasonable restrictions on current account transactions after consulting with RBI (Reserve Bank of India).
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