Foreign Exchange Management explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The Permissible Capital Account Transactions Regulations, 2000 sort capital account transactions into two lists, those of persons resident in India (Schedule I) and those of persons resident outside India (Schedule II). They allow a person to sell or draw foreign exchange for a listed transaction within the limit set by the regulation relevant to that transaction, prohibit capital account transactions otherwise, and bar investment in India by non-residents in a short list of businesses. This overview walks through regulations 1 to 6 and the two Schedules. If you want a transaction classified, our FEMA advisory team can do it for you.
The Regulations are the gateway text for capital account transactions. Regulation 3 classes them under Schedule I (eleven classes, residents) and Schedule II (seven classes, non-residents), and lets a person sell or draw foreign exchange for a listed transaction within the limit, if any, in the regulation relevant to that transaction. Regulation 4 prohibits all others, and regulation 4(b) bars non-resident investment in chit funds, Nidhi companies, agricultural or plantation activities, real estate business or construction of farm houses, and trading in Transferable Development Rights.
Which text is being explained
The Regulations are Notification FEMA 1/2000-RB dated 3 May 2000, made by the Reserve Bank, in consultation with the Central Government, under sub-section (2) of section 6 and sub-section (2) of section 47 of the Foreign Exchange Management Act, 1999. See our articles on section 6, capital account transactions and sections 47 and 48.
This article is based on a third-party print of the Regulations, with a page header dated 5/8/2018 and no amendment notes in the body, and is therefore read "as per the copy consulted". The footnote at the end of the copy shows the latest amendment as the Amendment Regulations, 2013. No Reserve Bank page of the amended Regulations is among the sources consulted, so amendments after 2013 are not shown here. Later amendments and circulars should be checked on the Reserve Bank and Gazette sites. For the meaning of "capital account transaction" in the Act, see our article on section 2.
Regulations 1 and 2: title, commencement and definitions
Regulation 1 gives the title and says the Regulations came into force on the 1st day of June, 2000. Regulation 2 defines "Act", "Drawal" (the same wording as in the Current Account Transactions Rules, covering drawal from an authorised person, opening a letter of credit and use of international cards), "Schedule", and "Transferable Development Rights", meaning certificates issued in respect of a category of land acquired for public purpose by the Central or State Government in consideration of surrender of land by the owner without monetary compensation, which are transferable in part or whole. Words not defined take the Act's meaning.
Regulation 3: the two lists
Regulation 3(1) says that capital account transactions of a person may be classified into (A) transactions, specified in Schedule I, of a person resident in India, and (B) transactions, specified in Schedule II, of a person resident outside India. Regulation 3(2) says that, subject to the Act or the rules, regulations, directions or orders made under it, any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction specified in the Schedules, provided the transaction is within the limit, if any, specified in the regulations relevant to the transaction.
So the Regulations do not carry the limits for each class. They send you to the regulation that deals with that class. For the wider subject, see our guide on capital account transactions under FEMA; for guarantees, see the Guarantees Regulations, 2026.
Schedule I: classes of residents' transactions
| Item | Class as printed |
|---|---|
| (a) | Investment by a person resident in India in foreign securities |
| (b) | Foreign currency loans raised in India and abroad by a person resident in India |
| (c) | Transfer of immovable property outside India by a person resident in India |
| (d) | Guarantees issued by a person resident in India in favour of a person resident outside India |
| (e) | Export, import and holding of currency or currency notes |
| (f) | Loans and overdrafts (borrowings) by a person resident in India from a person resident outside India |
| (g) | Maintenance of foreign currency accounts in India and outside India by a person resident in India |
| (h) | Taking out of insurance policy by a person resident in India from an insurance company outside India |
| (i) | Loans and overdrafts by a person resident in India to a person resident outside India |
| (j) | Remittance outside India of capital assets of a person resident in India |
| (k) | Sale and purchase of foreign exchange derivatives in India and abroad and commodity derivatives abroad by a person resident in India |
Schedule II: classes of non-residents' transactions
| Item | Class as printed |
|---|---|
| (a) | Investment in India by a person resident outside India: (i) issue of security by a body corporate or entity in India and investment therein; (ii) contribution to the capital of a firm, proprietorship concern or association of persons in India |
| (b) | Acquisition and transfer of immovable property in India by a person resident outside India |
| (c) | Guarantee by a person resident outside India in favour of, or on behalf of, a person resident in India |
| (d) | Import and export of currency or currency notes into or from India by a person resident outside India |
| (e) | Deposits between a person resident in India and a person resident outside India |
| (f) | Foreign currency accounts in India of a person resident outside India |
| (g) | Remittance outside India of capital assets in India of a person resident outside India |
The Schedules are classes, not approvals. Each class is dealt with by its own regulation, rule or direction. For example, Schedule II item (a)(i) is the inbound investment, whose parent Rules, the Non-debt Instruments Rules, 2019, are not in the sources consulted for this series; see our guide on the FDI policy.
Regulation 4: the prohibition and the two provisos
Regulation 4(a) says that, save as otherwise provided in the Act or the rules or regulations made under it, no person shall undertake or sell or draw foreign exchange to or from an authorised person for any capital account transaction. The copy then carries a proviso for resident individuals, inserted by amendment, that allows drawal for a Schedule I transaction up to a stated amount per financial year "or such amount as decided by Reserve Bank from time to time", with an Explanation on gifts and donations and a second proviso on remittances to countries notified by the Financial Action Task Force. The amount in that proviso is from an older print and is not repeated here; for the current limit, read our article on the Liberalised Remittance Scheme and the article on Schedule III. The Explanation in the copy refers to "item Nos. 3 and 4 of Schedule III" of the Current Account Transactions Rules; the Schedule III now reproduced by the Reserve Bank carries no such item numbers, so treat that cross-reference as stale.
Regulation 4(b) is the prohibited sector list. No person resident outside India shall make investment in India, in any form, in any company, partnership firm, proprietary concern or any entity, whether incorporated or not, which is engaged or proposes to engage:
- in the business of chit fund; or
- as Nidhi Company; or
- in agricultural or plantation activities; or
- in real estate business, or construction of farm houses; or
- in trading in Transferable Development Rights (TDRs).
An Explanation says that "real estate business" shall not include development of townships, construction of residential or commercial premises, roads or bridges.
Regulations 5 and 6: payment and declaration
Regulation 5 says payment for investment shall be made by remittance from abroad through normal banking channels or by debit to an account of the investor maintained with an authorised person in India, in accordance with the regulations made by the Reserve Bank. Regulation 6 requires every person selling or drawing foreign exchange to or from an authorised person for a capital account transaction to furnish to the Reserve Bank a declaration, in the form and within the time specified in the regulations relevant to the transaction. The Regulations themselves do not name the form.
Example
Bluewater Foods Pvt Ltd, an Indian company, receives a proposal from an overseas investor to invest in a company that sells plantation land. Regulation 4(b)(iii) and (iv) bar non-resident investment in an entity engaged or proposing to engage in agricultural or plantation activities or in real estate business. The prohibition applies "in any form". The structure of the instrument does not change that. By contrast, if the same investor wanted to invest in a company that builds residential premises, the Explanation says real estate business does not include construction of residential or commercial premises; the permission would then depend on the other applicable rules.
Common mistakes
- Reading Schedule I or II as a list of what is allowed without limits. Regulation 3(2) allows the transaction only within the limit, if any, specified in the relevant regulation.
- Using the older limit printed in an old copy of regulation 4(a). Use current Reserve Bank text.
- Forgetting the declaration under regulation 6.
Need help classifying a capital account transaction?
Whether a transaction falls under Schedule I or Schedule II, and which regulation then sets the limit, decides the approval route. Our FEMA advisory team can place your transaction in the right class, identify the relevant instrument and prepare the filing.
Key takeaways
- Schedule I lists eleven classes for residents; Schedule II lists seven classes for non-residents.
- Regulation 3(2) permits a listed transaction within the limit, if any, in the relevant regulation.
- Regulation 4(b) bars non-resident investment in five kinds of business.
- Regulation 5 requires normal banking channels or debit to the investor's account with an authorised person.
- Regulation 6 requires a declaration to the Reserve Bank in the form and time the relevant regulation specifies.
Read next
- Cross-border guarantees: the Guarantees Regulations, 2026
- Liberalised Remittance Scheme: Master Direction
- Capital account transactions under FEMA
- Section 6 of FEMA: capital account transactions
Disclaimer: Based on the rules, regulations and Reserve Bank Master Directions under the Foreign Exchange Management Act, 1999 that this article names, each in the version and up to the date stated in the article, as consulted on 2 October 2026. Some texts are third-party copies or older prints and are identified as such. Limits, forms and time limits change by amendment and circular; later changes should be checked on the Reserve Bank and Gazette sites. This article is general information, not legal advice; check the official text before acting.