Current Account Transactions rules & regulations

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Current Account Transactions rules & regulations

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:

• Lottery winnings,
• Income generated from racing or riding etc. or any other related hobby
• Purchase of lottery tickets, banned/ prescribed magazines, football pools, sweepstakes, etc.
• Commission on exports made towards equity investment in Joint Ventures/ Wholly Owned Subsidiaries abroad of Indian companies
• Dividends by any company to which the requirement of dividend balancing is applicable.
• Commission on exports under Rupee State Credit Route, except commission up to 10% of the invoice value of exports of tea and tobacco
• “Call Back Services” of telephones
• Interest income on funds held in Non-Resident Special Rupee (Account) Scheme
• Drawal of foreign exchange by any person is prohibited for travel to Nepal and/ or Bhutan and/ or a transaction with a person resident in Nepal or Bhutan.

Remittances allowed with prior approval from the Government:

• For cultural tours, prior approval from the Ministry of Human Resources Development (Department of Education and Culture) is needed.
• For remittance of freight of a vessel chartered by a PSU, prior approval from the Ministry of Surface Transport (Chartering Wing) is needed.
• For payment of import through ocean transport by a government department or a PSU on a CIF basis, prior approval from the Ministry of Surface Transport, (Chartering Wing) is needed.
• For Multi-modal transport operators making remittances to their agents abroad, prior approval from the Registration Certificate from the Director-General of Shipping is needed.
• For advertisement in foreign print media for purposes other than promotion of tourism, foreign investments, and international bidding (exceeding USD 10,000) by a State Government and its PSUs, prior approval from the Ministry of Finance (Department of Economic Affairs) is needed.
• For remittance of hiring charges of transponders by TV Channels & internet service providers, prior approval from the Ministry of Information and Broadcasting (Ministry of Broadcasting (Ministry of Communication and Information Technology) is needed.
• For remittance of container detention charges exceeding the rate prescribed by the Director-General of Shipping, prior approval from the Ministry of Surface Transport (Director General of Shipping) is needed.
• For 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 USD 100,000, prior approval from the Ministry of Human Resources Development is needed.
• For Remittance for membership of the P & I Club, prior approval from the Ministry of Finance (Insurance Division) is needed. 

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:

• Going abroad for private visits except for Nepal and Bhutan.
• Gifts or Donations.
• Going abroad for employment.
• Going abroad to emigrate to the country.
• Maintenance of close relatives abroad.
• Travel for business, attending a conference or specialized training or for meeting medical expenses or check-up abroad for medical treatment/ check-up
• Going abroad for medical treatment.
• Going abroad for studies.
• For other current account transactions.
• If an individual remits any amount under the LRS in a financial year then the applicable limit for such individual would be reduced from USD 250,000. The procedure for withdrawal or remit of any foreign exchange shall be the same as applicable for remitting any amount under LRS.
• The aforesaid restrictions are not applicable for use of the International Credit Cards by residents for making a payment towards expenses while on a visit outside India.
• If a person is a non-permanent residence in India and is a citizen of a foreign state other than Pakistan or someone who is on a deputation to the office or branch of a foreign country or subsidiary or joint venture in India of such foreign company
• Individual making remittance up to his net salary after deductions. 

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:

• Donations exceeding 1% of their foreign exchange earnings during the previous  three financial years or USD 5,000,000 whichever is less, for-

• Creation of chairs in reputed educational institutions.
• Contribution to funds (not being an investment fund) promoted by an educational institution.
• Contribution to a technical institution or body or association in the field of activity of the donor company.

• Commission, per transaction, to agents abroad for the sale of residential flats or commercial plots in India exceeding USD 25,000 or 5% of the inward remittance whichever is more.
• Remittance 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.
• Remittances exceeding 5 % of investment or USD 100,000 whichever is higher, are brought into India by an entity in India by way of reimbursement of pre-incorporation expenses.
• However, if the payment is made out of funds held in the Resident Foreign Currency (RFC) Account of the remitter, above mentioned limits will not be applicable.

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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