The terms ‘current account’ and ‘capital account’ are used in the context of balance ofpayments of a country. Current account transactions are those relating to export and import of services, income on investments and unilateral payments (gifts, remittances for family maintenance, etc). Capital account transactions relate to change in assets and liabilities abroad held by residents and changes in assets and liabilities in India of non-residents.
According to FEMA, current account transaction means a transaction other than a capital account transaction and without prejudice to the generally of the foregoing such transaction includes:
1 Payments due in connection with foreign trade, other current business, services and short term banking and credit facilities in ordinary course of business;
2 Payments due as interest on loans and as net income from investments;
3 Remittances for living expenses of parents, spouse and children residing abroad; and
4 Expenses in connection with foreign travel, education and medical care of parents, spouse and children.
Under section 5 of FEMA, the Government of India, in public interest and in consultation with Reserve Bank, is empowered to impose reasonable restrictions on certain current account transactions. Subject to those restrictions, any person may sell or draw foreign exchange to or from an authorized dealer if such sale or withdrawal is a current account transaction.
Next: Prohibited Transactions