Current account transactions [Section 5 of FEMA Act, 1999]

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....a "current account transaction." * The Central Government may, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions for current account transactions as may be prescribed. * The term of "Current Account Transaction" is define negatively in section 2(j) of the this Act. * "Current Account Transaction" means a transactio....

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....nt may, in public interest and in consultation with the reserve bank, impose such reasonable restriction for current account transaction as prescribed under foreign Exchange Management (Current Account Transactions)Rules, 2000. Section 5 of the Act permits any person to sell or draw Foreign Exchange to or from an Authorised person to undertake any current account transaction. The Central Governme....

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....Example 2. An Indian resident imports machinery from a vendor in Netherland for installing in his factory on a credit period of 3 months. * Under accounting and income-tax law, for the credit period of 3 months, there is a liability of the Indian importer to the Netherland vendor. * Under FEMA Act. 1999 also, it is a liability outside India. As per Section 2(j)(i), "short-term banking and cre....

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....her's bank account in New York. * Under accounting and income-tax law, gift is a "capital receipt". * Under FEMA, once the gift is accepted by the NRI, no one owns or owes anything to anyone in India or USA. The transaction is over. * Hence it is a Current Account Transaction. * If gift is a current account transaction, why is there a restriction under Current Account regulations? * I....