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CS Executive · Setting Up of Business, Industrial and Labour Laws · Setting up of Business outside India and Issues Relating thereto

Varun Textiles Ltd remits foreign exchange to its overseas joint venture as a capital account transaction. Which statement matches Section 6 of FEMA regarding drawal of foreign exchange for amortisation of loans or depreciation of direct investments in the ordinary course of business?

No restrictions can be imposed on such drawal. The proviso to Section 6(2) bars both the Reserve Bank and the Central Government from restricting drawal of foreign exchange for payments due on amortisation of loans or depreciation of direct investments in the ordinary course of business.

  1. AThe Reserve Bank or Central Government shall not impose restrictions on drawal for such paymentsCorrect
  2. BThe Reserve Bank must cap such drawal at a prescribed limit every year
  3. CSuch drawal is prohibited for capital account transactions
  4. DSuch drawal needs prior approval of the Competent Authority

Explanation

The proviso to Section 6(2) says that neither the Reserve Bank nor the Central Government shall impose restrictions on drawal of foreign exchange for payment due on account of amortisation of loans or for depreciation of direct investments in the ordinary course of business. Capping or prohibiting it contradicts this proviso.

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