Current Account Transactions: Limits, Approvals, and Penalties

Current account transactions under FEMA are the everyday cross-border payments India permits between residents and non-residents for goods, services, income, and personal transfers. The Foreign Exchange Management Act of 1999 sorts them into three tiers: freely permitted, permitted only with prior approval from the government or the Reserve Bank of India, and outright prohibited. Which tier your payment falls into decides whether you can walk into a bank and send the money, whether you need paperwork cleared first, or whether the transfer cannot be made at all.

What Counts as a Current Account Transaction

FEMA defines a current account transaction by exclusion: any cross-border transaction that is not a capital account transaction.¹ In practice, that covers four broad flows.

Trade in goods, meaning the export and import of physical merchandise.
Trade in services, including international transport, tourism, insurance, software, and technical consulting.
Income flows such as profit remittances, interest on loans, and shareholder dividends. The distinguishing feature is that these are the yield on capital, not the movement of the underlying capital.
Unilateral transfers, meaning one-way payments with nothing given in return: personal gifts from family abroad, government aid grants, and the like.

The line between current and capital matters because capital account movements alter India’s stock of foreign assets and liabilities, while current account flows keep the day-to-day trade and personal economy running. FEMA’s rules are designed to leave the latter mostly open.

The USD 250,000 Annual Limit for Individuals

Most personal remittances from India fall under the Liberalised Remittance Scheme, which lets every resident individual send up to USD 250,000 per financial year (April through March) for any permissible current or capital account purpose.² That single ceiling covers tuition abroad, medical treatment, gifts, tourism, maintenance of relatives, and small-scale overseas investment, so long as the purpose is not on the prohibited list.

A Permanent Account Number is mandatory for every LRS transaction, whatever the amount, so each remittance can be tracked against the annual limit.² Minors qualify too; a parent or guardian handles the paperwork.

Transactions That Need RBI Approval

Schedule III of the Current Account Transactions Rules sets thresholds above which the Reserve Bank of India must approve the remittance in advance. These are the limits individuals and businesses run into most often.³

Donations above USD 5,000 per remitter per year.
Gift remittances above USD 5,000 per remitter per year.
Private visits above USD 5,000 per calendar year, excluding travel to Nepal and Bhutan.
Business travel or conference attendance above USD 25,000 per trip, whatever the length of stay.
Studies abroad above USD 30,000 per academic year, or the institution’s estimate if higher.
Consultancy services procured from outside India above USD 100,000 per project.
Consultancy remuneration for infrastructure projects above USD 1,000,000 per project, and total consultancy fees for infrastructure above USD 10,000,000 per project.
Employment or emigration-related exchange above USD 5,000.

Crossing one of these thresholds does not mean the transaction is blocked. It means the bank cannot process it on its own authority; the RBI must clear it first, usually on the strength of documents showing the purpose is genuine.

Transactions That Need Government Approval

Schedule II items require clearance from the relevant Central Government ministry, not the RBI.⁴ These mostly affect state governments, public-sector undertakings, and specialized activities rather than ordinary personal remittances. The list includes cultural tours (Ministry of Human Resources Development), foreign print media advertising above USD 10,000 by state governments or their undertakings for purposes other than tourism or investment promotion, freight and transport remittances by public-sector undertakings and government departments (Ministry of Surface Transport), sports sponsorship or prize money above USD 100,000 by bodies other than recognized national and state sports associations, and transponder hire by television channels and internet service providers. A private individual sending money for education, medical care, or family support within the LRS limit will not encounter Schedule II.

What Cannot Be Remitted At All

Schedule I lists purposes for which no foreign exchange can be drawn, no matter the amount or the approvals sought.⁴³

Remittance of lottery winnings.
Remittance of income from racing, riding, or any other hobby.
Purchase of lottery tickets, banned or proscribed magazines, football pools, and sweepstakes through banking channels.
Payment of commission on exports made toward equity investment in joint ventures or wholly owned subsidiaries of Indian companies abroad.
Dividend remittances by companies subject to dividend-balancing requirements.
Commission on exports under the Rupee State Credit Route.
Payment for call-back telephone services.
Remittance of interest income on funds held in Non-Resident Special Rupee Accounts.

These are hard stops. There is no application, no ministry that will clear them, and no exception window.

Penalties for Breaking the Rules

FEMA treats contraventions as civil offenses, not criminal ones, but the numbers are large. Under Section 13, a violation of FEMA provisions, rules, or RBI directions can draw a penalty of up to three times the amount involved. Where the amount cannot be quantified, the penalty can reach ₹2 lakh. A continuing contravention attracts a further penalty of up to ₹5,000 for every day after the first day the violation continues.

The same rules apply to individuals, companies, and authorized dealer banks. Proceedings are conducted by an adjudicating officer appointed under FEMA, and appeals lie to the Appellate Tribunal for Foreign Exchange. The three-times multiplier means even a modest unauthorized remittance can carry a penalty several times its own value.

Tax Collected at Source on Outward Remittances

Since 2020, authorized dealers and banks have collected Tax Collected at Source on outward remittances above set thresholds, at rates that depend on the purpose. Education remittances funded by a loan from a financial institution that qualifies under Section 80E of the Income Tax Act attract no TCS. Education remittances from personal funds are charged TCS at 5% on the amount above ₹10 lakh in a financial year. Most other purposes, including tourism, attract TCS at 20% on amounts above ₹7 lakh in a financial year.

TCS is not an extra tax. It is credited against your income tax liability when you file your return. But the bank deducts it before releasing the funds, so a large remittance requires extra cash on hand. Keep the TCS certificates the bank issues; you’ll need them to claim the credit at filing time.

Paperwork the Bank Will Ask For

Every cross-border remittance through an authorized dealer bank requires Form A2, regardless of amount. The RBI has made this mandatory for all outward remittances, and the form is available at any authorized dealer.⁵

Along with Form A2, expect to provide:

A purpose code, a standardized RBI classification the bank selects from the official list — knowing whether the transaction is for education, medical treatment, gifts, or trade helps ensure it goes in under the right code.⁶
Your PAN card, required on every LRS remittance.²
Beneficiary bank details, including the IBAN and SWIFT code.
Supporting documents that substantiate the purpose and the amount: invoices, admission letters, medical estimates, or trade agreements.

Most authorized dealer banks now run online foreign exchange portals for uploading documents, entering the remittance details, and authorizing the payment with a one-time password. After submission the bank reviews the file for compliance, and processing typically takes one to two business days. You receive a transaction reference number and a confirmation receipt once the transfer is released.

1
Indian Embassy USA. FEMA (Foreign Exchange Management Act)
2
Reserve Bank of India. FAQs – Liberalised Remittance Scheme (LRS)
3
Reserve Bank of India. Foreign Exchange Management (Current Account Transactions) Rules – Notification
4
Income Tax Department. Foreign Exchange Management (Current Account Transactions) Rules, 2000
5
Reserve Bank of India. Form A2 – Application for Remittance Abroad
6
Reserve Bank of India. Annexure II and III – New Purpose Codes for Reporting Forex Transactions