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CS Executive · Economic, Commercial and Intellectual Property Laws · Overseas Direct Investment

Mehta Textiles Pvt Ltd, a resident Indian company, wants to buy shares of a company in Dubai. Under the Foreign Exchange Management Act, 1999, how is the purchase of foreign exchange for such an overseas investment treated?

Overseas investment is a capital account transaction. Under section 6(1), a person may sell or draw foreign exchange to or from an authorised person for it, but only subject to the permissible classes, limits and conditions specified or prescribed under section 6(2) and (2A).

  1. AIt is a capital account transaction for which a person may sell or draw foreign exchange to or from an authorised person, subject to the limits and conditions specified under the ActCorrect
  2. BIt is a current account transaction that needs no limit or condition of any kind
  3. CIt is a transaction that only the Adjudicating Authority may permit after an inquiry
  4. DIt is a transaction that is permitted only if the investor first obtains a declaration as an exporter of goods

Explanation

Section 6(1) lets any person sell or draw foreign exchange to or from an authorised person for a capital account transaction, subject to sub-section (2) and (2A) limits and conditions. Overseas investment is a capital account transaction, so it is not free of limits. The exporter declaration relates to section 7 and has no bearing on it.

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