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

Ramesh, a resident Indian, buys a flat in Dubai for personal use by remitting funds abroad. Under FEMA, 1999, which is the correct classification of this transaction?

Buying immovable property abroad by a resident Indian is a capital account transaction under FEMA, because it alters the assets held outside India by a person resident in India. It is not a current account transaction, and personal purpose does not exclude it from FEMA.

  1. AA current account transaction, freely permitted without restriction
  2. BA capital account transactionCorrect
  3. CA transaction outside the scope of FEMA since it is for personal use
  4. DA transaction that needs prior approval of the Supreme Court

Explanation

Acquiring immovable property outside India changes the assets of a person resident in India held abroad, so it is a capital account transaction under FEMA. It is not a current account transaction, because current account covers payments for trade, services, short-term banking, interest, remittance for living expenses, travel, education and the like. Personal purpose does not take it outside FEMA.

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