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CA Intermediate · Corporate and Other Laws · The Foreign Exchange Management Act, 1999

Meera Textiles Ltd, an Indian company, exports garments and receives payment from a buyer in Dubai. A question arises about whether the transaction is a current account transaction. Which is the correct position under FEMA?

Receipt of payment for export of goods is a current account transaction because it relates to foreign trade. Under FEMA such transactions are generally permitted freely, subject only to restrictions the Central Government may impose in public interest, so no RBI approval is needed as for a capital account transaction.

  1. APayment received for export of goods is a capital account transaction needing RBI approval
  2. BPayment received for export of goods is a current account transaction, which is generally freely permitted unless restricted by the Central GovernmentCorrect
  3. CExport proceeds are neither current nor capital account transactions
  4. DExport proceeds are capital account transactions only when exceeding Rs 1 crore

Explanation

Current account transactions include payments due in connection with foreign trade, such as exports. Under FEMA, they are free unless the Central Government imposes restrictions in public interest. Treating exports as capital account is wrong because capital account transactions alter assets or liabilities outside India. No Rs 1 crore threshold exists for classification.

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