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

Ramesh, a person resident in India, wishes to remit funds abroad. Under FEMA, 1999, which of the following transactions is classified as a 'capital account transaction' as defined in the Act?

A resident Indian acquiring shares of a foreign company is a capital account transaction, because it alters his assets outside India. Interest on loans, living expenses of family and depreciation of direct investment are current account transactions under FEMA.

  1. APayment of interest on a loan due in the ordinary course of business
  2. BA resident Indian acquiring shares of a foreign company, which changes his assets outside IndiaCorrect
  3. CRemittance of a small amount towards living expenses of a family member abroad
  4. DPayment due as a depreciation of a direct investment in the ordinary course

Explanation

A capital account transaction is one that alters the assets or liabilities, including contingent liabilities, outside India of a person resident in India, or in India of a person resident outside India. Acquiring foreign shares changes assets outside India, so it qualifies. The other options are listed as current account transactions: interest on loans, living expenses and depreciation in the ordinary course.

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