Foreign exchange transactions in India are governed by the Foreign Exchange Management Act, 1999 (FEMA), which is administered by the Reserve Bank of India (RBI). The regulations aim to facilitate foreign trade and investment while maintaining stability in the foreign exchange market. Here are the key regulations for foreign exchange transactions in India:
- Current Account Transactions:
Current account transactions include trade in goods and services, remittances, travel expenses, and more. These transactions are generally permitted without any restrictions. Individuals and entities can freely receive and make payments for current account transactions, subject to compliance with Anti-Money Laundering (AML) and Know Your Customer (KYC) norms. - Capital Account Transactions:
Capital account transactions involve investments, borrowings, and transfers of capital. These transactions are subject to certain restrictions and regulations to ensure orderly management of capital flows. The regulations are designed to prevent speculative activities and protect the stability of the Indian economy. - Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations:
These regulations govern the foreign direct investment (FDI) and foreign portfolio investment (FPI) in India. They specify the sectoral caps, entry routes, and other conditions for investment by non-residents in various sectors. The regulations also govern the transfer of securities by a person resident outside India. - Liberalized Remittance Scheme (LRS):
The LRS allows resident individuals to remit a certain amount of money abroad for various purposes like education, travel, medical treatment, etc. The current limit under the LRS is USD 250,000 per financial year per individual. This limit is subject to periodic review by the RBI. - Prohibited Transactions:
Certain transactions are strictly prohibited, such as transactions involving countries identified as non-cooperative for anti-money laundering purposes. Additionally, transactions related to gambling, lottery, and other speculative activities are not permitted. - Reporting Requirements:
Residents and non-residents engaging in foreign exchange transactions need to comply with reporting requirements. Authorized dealers (banks authorized to deal in foreign exchange) are required to submit various reports to the RBI to ensure proper monitoring of foreign exchange transactions. - Foreign Exchange Rates:
The RBI manages the exchange rate regime in India. While the rupee exchange rate is predominantly market-determined, the RBI intervenes in the foreign exchange market to manage excessive volatility and maintain stability.
It is important to note that the foreign exchange regulations in India are subject to change, and individuals and entities are advised to refer to the latest regulations and consult with authorized dealers or professionals for specific requirements or clarifications.
Please keep in mind that my knowledge cutoff is in September 2021, and there may have been updates or changes to the regulations since then. It is always advisable to consult the latest official sources or experts for up-to-date information.