The Foreign Exchange Management Act, 1999

(c)As per Schedule III of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, remittances by persons other than individuals shall require prior approval of the Reserve Bank of India (RBI) in the following cases- Remittances exceeding USD 10,000,000 per project for any consultancy services in respect of infrastructure projects and USD 1,000,000 per project, for other consultancy services procured from outside India.

In this scenario:

The proposed remittance of USD 8 million for consultancy on a highway infrastructure project is within the USD 10 million threshold. Therefore, VISTA Chains Ltd. can remit this amount without prior approval from the RBI.

The remittance of 1.2 million for software consultancy on a different project exceed USD 1 million threshold, so RBI approval is required for this transaction.

It is to be noted that the two remittances cannot be aggregated to determine compliance with the limits, because the prescribed limits operate per project and different limits apply depending upon whether the consultancy relates to an infrastructure project or other consultancy services. Thus, the CFO's view that the entire USD 9.2 million can be freely remitted without approval is incorrect.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, September 2026, 1(c) (New Scheme).

(c)Rule 5 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 provides that every drawal of foreign exchange for transactions included in Schedule III shall be governed as provided therein. The proviso to the Rule 5 further states that this rule shall not apply where the payment is made out of funds held in Resident Foreign Currency (RFC) Account of the remitter.

Facilities for persons other than individual

S.No. 2 of Schedule III states that prior approval of the Reserve Bank of

India is required in case of persons other than individuals, where donations exceed, one per cent. of their foreign exchange earnings during the previous three financial years or USD 5,000,000, whichever is less, for:

a.creation of Chairs in reputed educational institutes,

b.contribution to a technical institution or body or association in the field of activity of the donor Company.

In the given case, XYZ Limited can make the maximum donation of USD 5 Million(M) [Lower of {1% of (200M+300M+400M)} or {5M}].

The company is intending to donate USD 4 Million as a contribution to a technical institution in USA and USD 3 Million for creation of a chair, which would amount to USD 7 Million in total.

As the company is allowed in aggregate a maximum of USD 5 Million, it is required to take prior approval of the Reserve Bank of India.

Therefore, the opinion of the directors is not correct. XYZ Ltd. cannot make the above remittances without obtaining prior approval of the Reserve Bank of India.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2026, 1(c) (New Scheme).

(c)(i) Holding of foreign exchange by resident in India

According to section 4 of the Foreign Exchange Management Act, 1999, except as provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.

This section prevents Indian residents to acquire, hold, own, possess or transfer any foreign exchange, foreign security or immovable property abroad. Then through separate notifications, acquisition of these assets has been permitted subject to certain conditions and compliance rules.

(ii)The general rule to be understood is that Current Account transactions are freely permitted unless specifically prohibited and Capital Account transactions are prohibited unless specifically or generally permitted.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2026, 6(c) (New Scheme).

(c)(i) As per Schedule III to the Foreign Exchange Management (Current Account Transactions) Rules, 2000, the following remittances by persons other than individuals shall require prior approval of the Reserve Bank of India. Commission per transaction to agents abroad for sale of residential flats or commercial plots in India exceeding USD 25,000 or five percent of the inward remittance whichever is more.

If any remittance is made for the transactions listed in Schedule II and Schedule III from Exchange Earners' Foreign Currency (EEFC) account, then also no approval is required. However, in case of the abovementioned commission if exceeding the prescribed limits, approval is required even if payment is from EEFC account.

The maximum amount that can be paid without RBI approval is USD 47,500 (5% of USD 9,50,000) or USD 25,000 whichever is higher.

Since, the amount of commission is USD 50,000, which is more than the limit of USD 47,500, approval is required.

(ii)Under the Liberalised Remittance Scheme (LRS), all resident individuals, including minors, are allowed to freely remit up to USD 250,000 per financial year (April-March) for any permissible current or capital account transaction or a combination of both.

Clubbing is not permitted by other family members for capital account transactions such as opening a bank account/investment/ purchase of property, if they are not the co-owners/co-partners of the overseas bank account/investment/property.

In the given question, since, Mr. Bob, his wife, major son and his father are holding equal shares in the property, clubbing is permitted and thus, the family members can remit USD 1,000,000 (implies USD 250,000 per member) to Mexico in a single financial year without requiring any approval.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, January 2026, 1(c) (New Scheme).

(c)As per the Foreign Exchange Management (Current Account Transactions) Rules, 2000, certain (current account) remittances by persons other than individuals require prior approval of the Reserve Bank of India (RBI).

(1)As per the Rules, donations made by persons other than individuals require prior approval of the RBI where the amount exceeds:

One per cent of the foreign exchange earnings during the preceding three financial years, or USD 5,000,000, whichever is less.

In the given case, Bhargava Ltd. has earned foreign exchange of USD 12,000,000 during the last three financial year. One per cent of USD 12,000,000 is USD 120,000.

Accordingly, Bhargava Ltd. can donate up to USD 120,000 without obtaining prior approval of the RBI. Any donation in excess of USD 120,000 would require prior approval of the RBI.

(2)As per the Rules, Remittances exceeding five per cent of investment brought into India or USD 100,000 whichever is higher, by an entity in India by way of reimbursement of pre-incorporation expenses, shall require prior approval of the Reserve Bank of India.

In the given case, for remittances of 6% of investment (in amount) brought into India, exceeding the 5% threshold or USD 100,000 (whichever is higher) prior RBI approval is mandatory.

Note: The answer to the question is on the presumption that the remittance is by way of reimbursement of pre-incorporation expenses. It further depends on relative value of 6% of investments vis-à-vis USD 100,000. Accordingly, the answer may vary depending on presumption whether 6% of investments exceeds USD 100,000 or otherwise.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, January 2026, 6(c) (New Scheme).

(c)(i) According to section 2(l) of the Foreign Exchange Management Act, 1999, ‘Export’, with its grammatical variations and cognate expressions means:

(1)the taking out of India to a place outside India any goods.

(2)provision of services from India to any person outside India.

In the given question, Heavy Loaders Ltd., an Indian company, supplied loader vehicles with an invoice value of USD 350,000 in consideration for the allotment of equity shares in an American Company, which is a wholly owned subsidiary of an Indian Company.

Since, the transaction involves ‘the taking out of India to a place outside India the loader vehicles’, the transaction will be treated as ‘export’.

(ii)As per Schedule I of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, drawl of foreign exchange is prohibited for Payment of commission on exports made towards equity investment in Joint Ventures/ Wholly Owned Subsidiaries abroad of Indian companies.

Hence, the payment of any commission by Heavy Loaders Ltd. to Mr. Fred is prohibited in the given situation.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, September 2025, 1(c) (New Scheme).

(c)As per the Foreign Exchange Management (Permissible Capital Account Transactions) Rules, 2000, a person resident outside India is prohibited from making investments in India in any form, in any company, or partnership firm or proprietary concern or any entity whether incorporated or not which is engaged or proposes to engage:

(i)In the business of chit fund; Registrar of Chits or an officer authorised by the State Government in this behalf, may, in consultation with the State Government concerned, permit any chit fund to accept subscription from Non-resident Indians. Non- resident Indians shall be eligible to subscribe, through banking channel and on nonrepatriation basis, to such chit funds, without limit subject to the conditions stipulated by the Reserve Bank of India from time to time.

(ii)As Nidhi company;

(iii)In agricultural or plantation activities;

(iv)In real estate business, or construction of farm houses, or

Explanation: In “real estate business” the term shall not include development of townships, construction of residential/commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014.

(v)In trading in Transferable Development Rights (TDRs).

'Transferable Development Rights' means certificates issued in respect of category of land acquired for public purpose either by Central or State Government in consideration of surrender of land by the owner without monetary compensation, which are transferable in part or whole.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, September 2025, 6(c) (New Scheme).

(c)As per Section 2(v) of the Foreign Exchange Management Act, 1999, “Person Resident in India” includes a person residing in India for more than 182 days during the course of the preceding financial year but does not include, a person who has come to or stays in India, in either case, otherwise than for any purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period.

As per provisions of the Foreign Exchange Management Act, 1999, a person resident 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 person when he was resident outside India or inherited from a person who was resident outside India.

The RBI vide A.P. (DIR Series) Circular No. 90 dated 9th January, 2014 has

issued a clarification on Section 6(4) of the Foreign Exchange Management Act, 1999. This circular clarifies that Section 6(4) of the Act covers the following transactions:

1.Foreign currency accounts opened and maintained by such a person when he was resident outside India.

2.Foreign exchange including any income arising therefrom, and conversion or replacement or accrual to the same, held outside India by a person resident in India acquired by way of inheritance from a person resident outside India.

In the given question Mr. V has permanently returned to India on 24th

November, 2024. Hence, he will be treated as a person resident in India from 24th November, 2024.

According to the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000, a person resident in India is permitted to maintain his foreign currency accounts and take insurance policy from an insurance company outside India.

Based on the above provisions, we can conclude that Mr. V who is residing in India since 2024, is now, a person resident in India and he is permitted to hold his bank account in USA and also pay for his insurance policy from that account.

ALTERNATE ANSWER:

According to the Section 6(4) of the Foreign Exchange Management Act, 1999, a person resident 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 person when he was resident outside India or inherited from a person who was resident outside India.

The RBI vide A.P. (DIR Series) Circular No.90 dated 9th January, 2014 has issued a clarification on Section 6(4) of the FEMA Act, 1999. This circular clarifies that section 6(4) of the Act covers the following transaction:

In terms of Section 6 (4) (iv) of FEMA, 1999, a person resident in India can freely utilize their eligible assets abroad, as well as income on such assets or sale proceeds thereof received after their return to India for making any payments or to make fresh investments abroad without approval of the Reserve Bank of India, provided the cost of such investments and/or any subsequent payments received therefore are met exclusively out of the funds forming part of eligible assets held by them and the transactions is not in contravention to the extant of FEMA provisions.

V has inherited money from his wife, who was a person resident outside India. V has been a resident in India since 24th November, 2024, as he had

permanently returned to India from abroad. Thus, amounts in his foreign bank accounts are classified as eligible assets under the FEMA.

Therefore, under Section 6(4) of the FEMA, 1999 and vide the above RBI circular, ‘V’ can pay the insurance premium from his bank account in the USA for his insurance policy taken in the USA, as taking an insurance policy is a permitted transaction under Schedule I of the Foreign Exchange Management (Permissible Capital Account Transactions) regulations, 2000. So, by that account, paying a premium is also a permissible transaction.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2025, 1(c) (New Scheme).

(c)The investment in immovable properties in India by Mr. Murari Lal, a resident outside India, is a Capital Account Transaction which is permissible as per Schedule II of the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 which permits Acquisition and Transfer of Immovable Property in India by a Person Resident Outside India.

According to Schedule III to Foreign Exchange Management (Current Account Transactions) Rules, 2000, remittances by persons other than individuals shall require prior approval of the Reserve Bank of India if Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India exceeds USD 25,000 or five percent of the inward remittance whichever is more.

As per the facts of the question and mentioned provisions, the following are the answers to the questions asked:

(i)Yes, the investment by Mr. Murari Lal and payment of commission on this transaction is permissible.

(ii)Calculation of maximum commission that can be paid without the approval of RBI.

The maximum amount of commission that can be paid to each broker for each transaction, without RBI approval is, more of- USD 25,000 or ₹ 6 lakh

[i.e. 5% of (60% of 2 crore)].

Thus, ₹ 6,00,000 can be paid to each broker as commission without taking

any prior approval of the RBI.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, January 2025, 1(c) (New Scheme).

(c)Meaning of the term ‘‘Current Account Transaction”

As per the provision of section 2(j) of the Foreign Exchange Management Act, 1999, “Current Account Transaction” means a transaction other than a Capital Account Transaction and includes the following types of transactions:

(i)Payments in the course of ordinary course of foreign trade, other services such as short-term banking and credit facilities in the ordinary course of business etc.,

(ii)Payments in the form of interest on loans or income from investments,

(iii)Remittances for living expenses of parents, spouse and children residing abroad, and

(iv)Expenses in connection with foreign travel, education and medical care of parents, spouse and children.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, January 2025, 6(c) (New Scheme).

(c)As per Schedule III to the Foreign Exchange Management Act, 1999, remittances by persons other than individuals shall require prior approval of the Reserve Bank of India, for donations exceeding 1% of their foreign exchange earnings during the previous three financial years or USD 5,000,000, whichever is less, for:

a.Creation of Chairs in reputed Educational Institutes,

b.Contribution to Funds (not being an investment fund) promoted by Educational Institutes; and

c.Contribution to a Technical Institution or Body or Association in the field of activity of the Donor Company.

In the given question, Mitali Diamonds Limited can donate lower of USD 3,300 [1% of (1,25,000 + 1,10,000 + 95,000)] or USD 5,000,000.

Thus, Mitali Diamonds Limited can give a donation of USD 3,300 without RBI approval and for USD 10,000 it shall require prior approval of the Reserve Bank of India to the said institution as this institution is a Technical Institution or Body or Association in the field of activity of the Donor Company.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, September 2024, 6(c) (New Scheme).

(c)The following remittances by persons other than individuals shall require prior approval of the Reserve Bank of India as provided under FEMA, 1999 read with Schedule III of the FEM (Current Account Transactions) Rules, 2000:

(i)Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India exceeding USD 25,000 or five percent of the inward remittance whichever is more.

(ii)Remittances exceeding USD 10,000,000 per project for any consultancy services in respect of infrastructure projects and USD 1,000,000 per project, for other consultancy services procured from outside India.

Explanation - For the purposes of this sub-paragraph, the expression “infrast r ucture’ shall mean as defined in explanation to para 1(iv)(A)(a) of Schedule I of FEMA Notification 3/2000-RB, dated the May 3, 2000.

(iii)Remittances exceeding five per cent of investment brought into India or USD 100,000 whichever is higher, by an entity in India by way of reimbursement of pre-incorporation expenses.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2024, 6(c) (New Scheme).

(c)As per section 2(v) of the Foreign Exchange Management Act (FEMA), 1999, a "Person Resident in India" (PRI) means a person residing in India for more than 182 days during the course of the preceding financial year, but does not include:

A person who has gone out of India or stays outside India for:

•Taking up employment outside India, or carrying on a business or

vocation outside India, or

•Any other purpose indicating an intention to stay outside India for an

uncertain period.

In the light of the stated provision, following are the answers:

(i)As regards Residential Status of Nirbhik Singh: Nirbhik Singh shall not be treated as a Person Resident in India. He is a Person Resident Outside India (PROI) from the date of his departure.

Even though he stayed in India for more than 182 days in the preceding financial year (2024-25), he left India in September 2025 to take up a five-year employment contract abroad. This falls under the exception of leaving India for employment.

Holding a residential property in Pune or maintaining Indian savings accounts does not alter his status under the FEMA, as residential status under FEMA is determined by the purpose of stay/departure rather than asset ownership.

(ii)Status of Namrata: Namrata shall be regarded as a Person Resident in India (PRI).

In this case, Namrata accompanied her husband to Singapore for a temporary period and returned to India within six months. She did not leave India for employment, business or with an intention to stay abroad for an uncertain period.

Since she returned to set up a textile export unit and intends to stay in India permanently, her temporary absence does not alter her status to a non-resident.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, September 2026, 6(c) (New Scheme).

(c)(i) Can Ms. Rose purchase the house in USA and continue to retain it even after returning to India?

According to section 6(4) of the Foreign Exchange Management Act, 1999, (the Act) a person resident 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 person when he was resident outside India or inherited from a person who was resident outside India.

Ms. Rose stayed in USA for 12 years, hence she must have become a non-resident for those years. She purchased a house during this time.

As per the above provisions, Ms. Rose can rightfully purchase the house in USA and continue to retain it after returning to India.

(ii)Can Ms. Rose purchase another house in USA after returning to India?

Ms. Rose deposited the amount of rent from the house to her account in USA. Out of that amount she purchased another house in USA after returning to India. Ms. Rose is a person resident in India due to joining an employment in India.

As per section 6(4)(iv) of the Foreign Exchange Management Act, 1999 (FEMA), a person resident in India may freely utilize all their eligible assets abroad as well as income on such assets or sale proceeds thereof received after their return to India for making any payments or to make any fresh investments abroad without approval of Reserve Bank, provided the cost of such investments and/or any subsequent payments received therefor are met exclusively out of funds forming part of eligible assets held by her and the transactions is not in contravention to extant FEMA provisions.

In view of the above, Ms. Rose can rightfully purchase another house in USA after returning to India.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, September 2024, 1(c) (New Scheme).

(c)According to section 2(v) of the Foreign Exchange Management Act, 1999, “Person resident in India” means a person residing in India for more than 182 days during the course of the preceding financial year but does not include a person who has gone out of India or who stays outside India, for or on taking up employment besides with the other specified purposes, outside India.

(i)In the given question, Mr. L will be treated as a person resident outside from 2.4.2024 till the time he works in Jeff Fashion Ltd. in Paris, as he has gone out of India for or on taking up employment outside India.

His return to India for 10 days to attend a family function, will not alter his residential status.

(ii)Mr. L will be treated as a person resident in India from the day he joins employment in India (after arriving on 30.4.2024).

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2024, 1(c) (New Scheme).

(c)Definition of ‘Foreign Exchange’

According to Section 2(n) of the Foreign Exchange Management Act, 1999, Foreign Exchange means foreign currency and includes:

(i)deposits, credits and balances payable in any foreign currency,

(ii)drafts, travelers’ cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency,

(iii)drafts, travelers’ cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency.

Definition of ‘Foreign Security’

According to Section 2(o) of the Foreign Exchange Management Act, 1999, Foreign Security means any security, in the form of shares, stocks, bonds, debentures or any other instrument denominated or expressed in foreign currency and includes securities expressed in foreign currency, but where redemption or any form of return such as interest or dividends is payable in Indian currency.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2025, 6(c) (New Scheme).