Capital Account Transactions under FEMA, 1999

The FEMA Act, 1999 divides foreign exchange dealings into two types: current account and capital account. The capital account deals with investments, loans, and assets across borders.

What is a Capital Account Transaction?

A capital account transaction means any deal that changes assets or debts across India and abroad.

• Buying shares of a company abroad.
• Selling property in India to a foreigner.
• Taking a loan from outside India.
• Sending money to buy assets abroad.

All these change the wealth of a person or company. That is why they fall under the capital account.

Who controls it?

The Reserve Bank of India (RBI) controls capital account transactions. You need RBI approval for many such deals. Some are allowed under automatic routes. Others need prior permission.

Why is control needed?

If money moves freely in and out without checks, it can harm the economy. Big outflows may weaken the rupee. Sudden inflows may cause sharp swings in markets. Control helps India stay stable.

Examples of capital account rules

• Foreign Direct Investment (FDI): Allowed in many sectors. Some need government nod.
• Overseas Direct Investment (ODI): Indian firms can invest abroad within limits.
• Property rules: Non-residents can buy certain property in India, but farm land is restricted.
• Borrowing: Indian companies can borrow abroad, but only within RBI norms.

Penalties

Breaking capital account rules under FEMA can lead to heavy fines. The fine can be up to three times the amount involved.

Conclusion

Capital account transactions are at the core of FEMA. They link Indian wealth with the world. The rules aim to welcome investment but also protect the economy.