Current account transactions under the Foreign Exchange Management Act (FEMA) include payments related to trade, travel, education, medical treatment, remittances, and more. These transactions primarily involve day-to-day financial dealings rather than long-term capital movements. Here are practical case studies to illustrate the application of FEMA rules to current account transactions:

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Case Study 1: Payment for Import of Goods

Scenario

XYZ Pvt. Ltd., an Indian company, imports machinery worth $200,000 from Germany. The company plans to make the payment through its authorized bank.

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Regulatory Framework

1. Permissibility:
   • Payments for import of goods are permissible under FEMA as current account transactions.
   • Payments must be routed through authorized dealer (AD) banks.
   • Necessary import documents, such as the invoice and bill of entry, must be submitted.
2. XYZ Pvt. Ltd.’s Case:
   • The company submits the required documentation to the AD bank.
   • The payment is made directly to the supplier’s account in Germany.

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Key Considerations

• The transaction is subject to compliance with RBI guidelines on import payments.
• The company must ensure that the transaction is reported in its books of accounts.

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Outcome

The payment for imported goods is a valid current account transaction under FEMA, provided all documentation is in order.

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Case Study 2: Foreign Education Fee Payment

Scenario

Rohit, an Indian resident, has enrolled in a university in the USA. He needs to remit $30,000 as the tuition fee for the first semester.

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Regulatory Framework

1. Permissibility Under FEMA:
   • Indian residents can remit funds for foreign education under Liberalized Remittance Scheme (LRS).
   • The annual limit for LRS is $250,000 per individual.
2. Rohit’s Case:
   • Rohit submits the tuition fee invoice and his admission letter to his bank.
   • The bank processes the payment directly to the university’s account.

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Key Considerations

• Rohit must retain documentation of the remittance for future reference or audit.
• He is not required to obtain RBI approval as the amount is within the LRS limit.

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Outcome

The remittance for foreign education complies with FEMA regulations as a current account transaction.

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Case Study 3: Medical Treatment Abroad

Scenario

Anjali, an Indian resident, needs to travel to Singapore for medical treatment. She plans to carry $10,000 as foreign exchange for initial expenses and remit another $50,000 directly to the hospital.

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Regulatory Framework

1. Permissibility Under FEMA:
   • Foreign exchange for medical treatment is permissible without prior approval, provided the total remittance is within the LRS limit.
   • An Indian resident can carry foreign exchange up to $3,000 in cash and additional amounts through traveler’s checks or cards.
2. Anjali’s Case:
   • Anjali obtains a medical certificate and hospital estimate to justify the amount.
   • Her bank remits $50,000 to the hospital and allows her to carry $3,000 in cash and $7,000 through other modes.

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Key Considerations

• Anjali must submit supporting documents to the AD bank for processing the remittance.
• She must adhere to currency-carrying limits as prescribed under FEMA.

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Outcome

The remittance and currency carrying for medical treatment comply with FEMA guidelines.

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Case Study 4: Payment for Export Services

Scenario

DEF Pvt. Ltd., an Indian IT company, provides software development services to a client in the UK. The client makes a payment of £50,000 to the company’s bank account in India.

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Regulatory Framework

1. Permissibility:
   • Receipt of foreign exchange for export of services is a permitted current account transaction.
   • The payment must be realized and repatriated to India within the time frame prescribed by RBI (typically 9 months).
2. DEF Pvt. Ltd.’s Case:
   • The company raises an invoice for the services rendered.
   • The foreign exchange payment is credited to its EEFC (Exchange Earners’ Foreign Currency) account.

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Key Considerations

• The company must submit the export invoice and Foreign Inward Remittance Certificate (FIRC) to its bank.
• It must report the export earnings in its financial statements and comply with GST (if applicable).

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Outcome

The receipt of foreign exchange for export services is valid under FEMA and complies with export norms.

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Case Study 5: Remittance of Gift to an NRI Relative

Scenario

Kavita, an Indian resident, wants to gift $5,000 to her sister, who is an NRI residing in Canada.

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Regulatory Framework

1. Permissibility:
   • Gifts to NRIs are permitted under FEMA as current account transactions.
   • The remittance must be within the LRS limit of $250,000 per financial year.
2. Kavita’s Case:
   • Kavita submits her relationship proof and gift declaration to her bank.
   • The bank processes the remittance to her sister’s account in Canada.

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Key Considerations

• Kavita must ensure that the funds are transferred for personal purposes and not for any prohibited activities.
• The gift must be reported in Kavita’s income tax return (ITR).

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Outcome

The gift remittance is valid under FEMA and complies with LRS guidelines.

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Case Study 6: Business Travel Expenses

Scenario

Manoj, a sales executive for an Indian company, is traveling to Europe for a business conference. The company provides him with €5,000 to cover his travel and accommodation expenses.

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Regulatory Framework

1. Permissibility:
   • Companies can provide foreign exchange to employees for business travel under FEMA.
   • The permissible limit for business travel is typically determined by the company’s authorized dealer bank.
2. Manoj’s Case:
   • The company obtains foreign exchange through its bank and provides it to Manoj in the form of a forex card.

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Key Considerations

• Manoj must submit an expense report along with supporting documents after the trip.
• The company must retain records of the foreign exchange provided for audit purposes.

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Outcome

The provision of foreign exchange for business travel complies with FEMA as a current account transaction.

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Case Study 7: Payment for Subscription Services

Scenario

Alok, an Indian resident, subscribes to a premium streaming service based in the USA for $120 per year. The payment is made through his international credit card.

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Regulatory Framework

1. Permissibility:
   • Payments for online subscriptions are allowed as current account transactions under FEMA.
   • Such payments fall under the overall LRS limit of $250,000 per year.
2. Alok’s Case:
   • The payment is made through his Indian credit card linked to an international payment gateway.

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Key Considerations

• Alok must ensure that the subscription service is not for prohibited purposes under FEMA.
• He should retain proof of payment for future reference.

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Outcome

The payment for subscription services is valid under FEMA guidelines.

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Key Takeaways

Transaction Type	Permissibility Under FEMA	Key Compliance Points
Payment for import of goods	Allowed through authorized dealer banks.	Submit import documents and route payment properly.
Foreign education fee	Allowed under LRS.	Submit invoices and comply with annual limits.
Medical treatment abroad	Allowed under LRS and FEMA.	Retain medical certificates and adhere to limits.
Export of services	Foreign exchange receipts are permissible.	Submit invoices and report earnings.
Gift remittance to NRI	Permissible under LRS.	Provide proof of relationship and declare in ITR.
Business travel expenses	Foreign exchange for business purposes is allowed.	Retain records of expenses and foreign exchange.
Subscription payments	Allowed under LRS.	Ensure the service is not for prohibited purposes.

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