Page 216 - DMGT401Business Environment

Unit 9: Foreign Exchange Management

Regulation of Capital Account Transaction Notes

Subject to the provision of sub-section (2), any person may sell or draw foreign exchange to or
from an authorised person for a capital account transaction.
The RBI may, in consultation with the Central government, specify:

1. any class or classes of capital account transaction that are permissible;
2. the limit up to which foreign exchange shall be admissible for such transactions.
Provided that the RBI shall not impose any restrictions on the withdrawal of foreign exchange
for payments due on account of amortisation of loans for depreciation of direct investment in
the ordinary course of business.
Without prejudice to the generality of the provision of sub-section (2), the Reserve Bank may, by
regulations prohibit, restrict or regulate the following:
1. Transfer or issue of any foreign security by a person residing in India.
2. Transfer or issue of any security by a person residing outside India.

3. Transfer of issue of any security of foreign security by any branch, office or agency in India
of a person residing outside India.
4. Any borrowing or lending in foreign exchange in whatever form or by whatever name
known.
5. Any borrowing or lending in rupees in whatever form or by whatever name known
between a person residing in India and a person residing outside India.
6. Deposits between persons residing in India and persons residing outside India.
7. Export, import or holding of currency or currency notes.
8. Transfer of immovable property outside India, other than lease not exceeding five years,
by a person residing in India.
9. Acquisition or transfer of immovable property in India, other than a lease not exceeding
five years by a person residing outside India.
10. Giving a guarantee or surety in respect of any debt, obligation or other liability incurred:
(a) By a person residing in India and owed to a person residing outside India; or
(b) By a person residing outside India.

A person residing in India may hold, own, transfer or invest in foreign currency, foreign security
or any immovable property situated outside India if such currency, security or property was
acquired, held or owned by such persons when he was residing, outside India or inherited from
a person who was residing outside India.
A person residing outside India may hold, own, transfer or invest in Indian currency, security or
any immovable property situated in India if such currency, security or property was acquired,
held or owned by such person when he was residing in India or inherited from a person who
was residing in India.
Without prejudice to the provision of the section, the RBI may, by regulations prohibit, restrict
or regulate establishment in India of a branch, office or other place of business by a person
residing outside India, for carrying on any activity relating to such branch, office or other place
of business.

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