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

Ravi Nair, a person resident in India, wants to remit funds abroad for his daughter's education at a foreign university. Under FEMA, the foreign exchange transaction he wishes to carry out is best classified as which type of transaction?

Remittance for the education of a child abroad is a current account transaction under FEMA, since the Act's definition expressly lists expenses for foreign education among current account items. It does not create or change assets or liabilities outside India, so it is not a capital account transaction.

  1. AA capital account transaction only, because it involves a transfer of funds to a non-resident university
  2. BA current account transaction, because it is a remittance for education, which is a current account itemCorrect
  3. CA transaction that is prohibited under FEMA unless the RBI grants prior approval in every case
  4. DA transaction outside FEMA because it is a personal gift and not a payment

Explanation

FEMA defines current account transactions to include payments due in connection with foreign trade, other current business, services and short-term banking, and expenses for foreign travel, education and medical care of parents, spouse and children. Remittance for a child's education is therefore a current account transaction. Option A is wrong because it does not alter the person's assets or liabilities outside India in the way a capital account transaction does.

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