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

Ravi, an Indian resident, wants to buy a flat in Dubai for personal use by remitting funds abroad. Under FEMA, which of the following best describes how such a remittance is classified?

Buying a flat abroad is a capital account transaction, since it alters the assets held outside India by a resident. FEMA regulates such transactions and permits them only within the limits and conditions prescribed by the Central Government and RBI, such as the Liberalised Remittance Scheme.

  1. AA current account transaction, always permitted without any limit
  2. BA capital account transaction, regulated under FEMA and permitted only within prescribed limits and conditionsCorrect
  3. CA current account transaction, always prohibited
  4. DA transaction outside FEMA because the asset is held abroad

Explanation

Acquiring immovable property outside India is a capital account transaction because it changes assets of a person resident in India. Capital account transactions are regulated and allowed within limits prescribed under FEMA rules and the Liberalised Remittance Scheme. Option A is wrong because current account transactions are the ones generally permitted freely.

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