What is the difference between Capital Account transactions and Current Account transactions?

What is the difference between Capital Account transactions and Current Account transactions?

Rajesh’s only daughter Piya has been residing in France for several years now and intends to pursue her Ph.D. While she has received a full scholarship for her tuition, her living expenses need to be looked after. Moreover, she has recently bought a home in France and has EMI payments to take care of. Rajesh wishes to reduce the financial strains on his daughter and pay for her monthly instalments, as well as her living expenses. He wonders if he can be a part-owner of the house she’s bought.

However, Rajesh is unclear whether his payments would be treated as a Capital Account transaction or would be considered as a Current Account transaction.

Moreover, he still needs more clarity on what additional documents and disclosures need to be made, if any, to facilitate the transactions and the processes involved.

According to the Foreign Exchange Management Act, 1999 (FEMA), Current Account transactions are not Capital Account transactions. They generally include:

• Payments that are due in connection with foreign trade, other current businesses, services and short-term banking and credit facilities in the ordinary course of business
• Payments that are due as interest on loans and as net income from investments
• Remittances for living expenses of parents, spouse and children residing abroad
• Expenses in connection with foreign travel, education and medical care of parents, spouse, and children.

Capital Account transactions, on the other hand, are all transactions that:

1. Change or alter assets and liabilities, including contingent liabilities (liabilities that may occur in the future), held abroad by Indian residents
2. Change or alter assets and liabilities held in India by non-residents.

This definition, however, is quite broad and the transactions are regulated by the Reserve Bank of India (RBI). While they have been liberalised over the years, one needs to know and comply with regulations laid down for such transactions.

Capital Account transactions are complicated as they involve accountants, law firms and bankers of both the sender and the receiver working together. Often both parties struggle to find a single dependable source for reliable guidance on compliance issues.

At ICICI Bank, we have years of expertise in handling such transactions and ensuring that the hurdles posed by them are dealt with swiftly and effectively. Our experts will not only help you navigate the path till the time of the transaction, but also with all the regulatory filings that need to be made once the transaction is complete.

The bouquet of services provided by ICICI Bank includes:

1. Specialised teams to handle Capital Account transactions and dedicated Capital Account Managers (CAMs)
2. Pre-vetting (i.e., pre-verification) of documents for timely submission of regulatory returns
3. Dedicated experts to handle pre-and-post-transaction queries
4. Online Settlement of FDI through CIB, the first and the only one of its kind in the country
5. Simplified documentation and quick processing.

If you have further queries, reach out to us at:

Let us take care of the rest.