Section 5 of the FEMA provides that any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction. However, the proviso to Section 5 provides that the Central Government may, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions for current account transaction as may be prescribed. The expression “current account transaction” as per Section 2(j) of FEMA is defined as under:
2(j) “current account transaction” means a transaction other than a capital account transaction and without prejudice to the generality of the foregoing such transaction includes, —
(i) payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business,
(ii) payments due as interest on loans and as net 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.
Hence, the Government of India have accordingly issued a Notification No. GSR 381(E) dated 3.5.2000 notifying the Foreign Exchange Management (Current Account Transactions) Rules, 2000 in terms of which drawal of exchange for certain transactions has been prohibited and restrictions have been placed on certain transactions.