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Section 6 Foreign Exchange Mgt. Act 1999: Capital Account Transactions

Section 6 (Capital account transactions) under Chapter II (Regulation and Management of Foreign Exchange) of the Foreign Exchange Management Act 1999 (FEMA)

❝(1) Subject to the provisions of sub-section (2), any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction.

(2) The Reserve Bank may, in consultation with the Central Government, specify—
 (a) any class or classes of capital account transactions which are permissible;
 (b) the limit up to which foreign exchange shall be admissible for such transactions:
 (c) any conditions which may be placed on such transactions;

 Provided that the Reserve Bank shall not impose any restriction on the drawal of foreign exchange for payments due on account of amortization of loans or not depreciation of direct investments in the ordinary course of business.

(2A) The Central Government may, in consultation with the Reserve Bank, prescribe—
 (a) any class or classes of capital account transactions, not involving debt instruments, which are permissible;
 (b) the limit up to which foreign exchange shall be admissible for such transactions; and
 (c) any conditions which may be placed on such transactions.

(3) Without prejudice to the generality of the provisions of sub-section (2), the Reserve Bank may, by regulations prohibit, restrict or regulate the following:—
 (a) transfer or issue of any foreign security by a person resident in India;
 (b) transfer or issue of any security by a person resident outside India;
 (c) transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India;
 (d) any borrowing or lending in foreign exchange in whatever form or by whatever name called;
 (e) any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India;
 (f) deposits between persons resident in India and persons resident outside India;
 (g) export, import or holding of currency or currency notes;
 (h) transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India;
 (i) acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India;
 (j) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred—
   (i) by a person resident in India and owed to a person resident outside India; or
   (ii) by a person resident outside India.

(4) 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.

(5) A person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.

(6) Without prejudice to the provisions of this section, the Reserve Bank may, by regulation, prohibit, restrict, or regulate establishment in India of a branch, office or other place of business by a person resident outside India, for carrying on any activity relating to such branch, office or other place of business.

(7) For the purposes of this section, the term “debt instruments” shall mean, such instruments as may be determined by the Central Government in consultation with the Reserve Bank.❞



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Notes:

❝Section 6 of the Act was amended by the Finance Act, 2015 (effective date is to be notified for these amendments):-

(A) in sub-section (2),––
 (i) for clause (a), the following clause shall be substituted, namely:––
  “(a) any class or classes of capital account transactions, involving debt instruments, which are permissible;”;
 (ii) after clause (b), the following clause shall be inserted, namely:—
   “(c) any conditions which may be placed on such transactions;”;
 (iii) for the proviso, the following proviso shall be substituted, namely:––
  “Provided that the Reserve Bank or the Central Government shall not impose any restrictions on the drawal of foreign exchange for payment due on account of amortisation of loans or for depreciation of direct investments in the ordinary course of business.”;

 (B) after sub-section (2), the following sub-section shall be inserted, namely:—
“(2A) The Central Government may, in consultation with the Reserve Bank, prescribe––
(a) any class or classes of capital account transactions, not involving debt instruments, which are permissible;
(b) the limit up to which foreign exchange shall be admissible for such transactions; and
(c) any conditions which may be placed on such transactions.”;

(C) sub-section (3) shall be omitted;

(D) after sub-section (6), the following sub-section shall be inserted, namely:—
‘(7) For the purposes of this section, the term “debt instruments” shall mean, such instruments as may be determined by the Central Government in consultation with the Reserve Bank.’.❞

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Extra Notes:

The Foreign Exchange Management Act, 1999 was amended by:
- the Finance Act, 2015 (Act No. 20 of 2015);
- the Finance Act, 2016 (Act No. 28 of 2016);
- the Finance Act, 2017 (Act No. 07 of 2017).

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