Cross-border transactions touch every Indian business dealing internationally, from SaaS companies receiving subscription payments to freelancers invoicing foreign clients. Current account transactions under FEMA cover these routine international payments for trade, services, and personal expenses that don’t alter your overseas assets. Understanding which transactions qualify, what approvals you need, and how new regulations impact your operations saves you from regulatory penalties and blocked payments.
The Foreign Exchange Management Act (FEMA) permits most current account transactions freely, but three critical schedules determine what’s prohibited, what needs government approval, and what requires RBI clearance. Recent 2025 updates extend export realisation timelines to 15 months and maintain TCS rates at 20% for most remittances above ₹10 lakhs. This guide breaks down exactly what you need to know for compliant international operations.
Key takeaways
- Current account transactions include foreign trade payments, travel, education, medical expenses, and interest payments that don’t change your overseas assets.
- Three schedules govern approvals: Schedule I (prohibited), Schedule II (government approval needed), and Schedule III (RBI limits apply).
- Individual residents can remit up to $250,000 annually under LRS with TCS rates between 0.5% to 20% above ₹10 lakhs.
- Exporters must realise and repatriate proceeds within 15 months (extended from 9 months in November 2025).
- Bank wire fees typically range from ₹200 to ₹1,000 for inward remittances, plus forex markups of 1.0% to 3.5%.
What Qualifies as a Current Account Transaction under FEMA?
FEMA defines current account transactions as any transaction other than a capital account transaction, specifically including payments for foreign trade, services, interest on loans, and family remittances abroad. This inclusive definition means that if a transaction doesn’t alter your assets or liabilities outside India, it likely qualifies as a current account.
Payments for Foreign Trade and Business Services
- Export and import payments for goods and services
- Short-term banking and credit facilities in the ordinary business course
- Consultancy fees and professional service charges
- Software subscriptions and SaaS payments
- Commission payments to overseas agents (except equity-linked)
Interest and Income from Investments
- Interest payments on foreign loans
- Dividend income from overseas investments
- Rental income from properties abroad
- Returns from mutual funds or bonds held overseas
The principal investment remains capital account, but the income generated qualifies as a current account.
Personal Remittances and Expenses
- Living expenses for family members residing abroad
- Education fees and related costs
- Medical treatment expenses overseas
- Foreign travel and accommodation
- Gifts and donations within prescribed limits
Did You Know?
The November 2025 RBI amendment extended the export realisation timelines from 9 months to 15 months, giving exporters more flexibility to collect delayed payments.
How Do Current Account Transactions Differ from Capital Account Transactions?
While current account transactions covered routine business and personal payments, capital account transactions fundamentally alter your balance sheet by changing overseas assets or liabilities.
Comparison of Transaction Types
| Parameter | Current Account Transaction | Capital Account Transaction |
| Focus | Trade, income, and operational expenses | Investment in assets and liabilities |
| Examples | Import payment, service fee, travel expense | Buying property abroad, overseas equity investment |
| Effect on Assets | No change to overseas assets/liabilities | Direct change to overseas assets/liabilities |
| FEMA Rule | Generally permitted unless specified | Generally prohibited unless permitted |
| Regulatory Stance | Liberal approach with specific restrictions | Conservative approach with specific permissions |
Why the Distinction Matters for Compliance
- Different reporting forms: Current account uses Form A2 while capital account requires FC-GPR or ODI forms
- Penalty structures: Misclassification triggers penalties ranging from warning letters to 3x the transaction amount
- Processing delays: Incorrect classification causes remittance blocks requiring weeks of bank correspondence
- Documentation needs: The capital account demands extensive approvals, while the current account needs basic invoices
Banks scrutinise transaction purpose codes carefully, and wrong classification immediately flags RBI compliance systems.
What Are the Three Approval Routes for Current Account Transactions?
The distinction between permitted and restricted transactions determines your approval pathway. The Foreign Exchange Management (Current Account Transactions) Rules, 2000, establish the following three schedules to create a clear hierarchy:
Schedule I: Strictly Prohibited Transactions
These transactions face a complete ban on foreign exchange withdrawal:
- Remittances from lottery winnings
- Income from racing, riding, or other hobbies
- Purchase of lottery tickets or banned magazines
- Sweepstakes and gambling proceeds
- Commission on exports for equity investment in overseas JV/WOS
- Remittance of dividends by companies where dividend payment requires RBI approval
- Payment related to “Call Back Services” of international telecom operators
Schedule II: Transactions Requiring Central Government Approval
Specific ministries must pre-approve these transactions:
- Cultural tours: Ministry of Human Resource Development approval needed
- Advertisement in foreign print media: State governments/PSUs need approval above $10,000
- Freight remittance by PSUs: Requires government clearance
- Prize money/sponsorship: Sports activities above $100,000 need approval
- Multi-modal transport operators: Registration from the Director General of Shipping is required
Schedule III: Transactions Requiring RBI or Bank Approval
These transactions have monetary limits under the Liberalised Remittance Scheme:
- Remittances exceeding $250,000 annually need RBI approval
- Medical treatment above the estimates requires additional documentation
- Education expenses beyond the institution’s estimates need justification
- Gift remittances above the prescribed individual limits
Pro Tip: Check your transaction against all three schedules before initiating. If not listed anywhere, proceed through your authorised dealer bank with standard KYC documents.
What Are the LRS Limits and TCS Rules for 2026?
The Liberalised Remittance Scheme governs how much individuals can remit annually, while new TCS rules significantly impact remittance costs above ₹10 lakhs.
LRS Remittance Limits for Individuals
- Annual limit: $250,000 per financial year (April to March) for all purposes combined
- Coverage: Both current account (travel, education) and capital account (property, shares) transactions
- Reset: Limit refreshes every April 1st, regardless of the previous year’s utilisation
- Family members: Each family member gets a separate $250,000 limit
- Clubbing prohibited: Cannot combine family limits for a single large transaction
Current TCS Rates and Thresholds (2026 Update)
The ₹10 lakh threshold triggers different TCS rates based on remittance purpose:
| Purpose | TCS Rate Above ₹10 Lakhs | Key Conditions |
| Education (Loan-funded) | 0.5% | Must provide education loan sanction letter |
| Education (Self-funded) | 5% | Direct payment without loan documentation |
| Medical Treatment | 5% | Hospital estimates and medical visa required |
| Overseas Tour Packages | 20% | Includes all travel agency bookings |
| Other Remittances | 20% | Investment, gifts, maintenance, property |
TCS isn’t additional tax but advance tax collection. Claim full credit when filing Income Tax Returns.
How to Handle Inward Current Account Transactions (Exports)
Inward export-related transactions are governed by FEMA export regulations and focus on the timely realisation and repatriation of proceeds within prescribed timelines, rather than LRS limits or TCS.
FEMA Guidelines for Realizing Export Proceeds
- Realisation deadline: 15 months from export date (extended from 9 months in November 2025)
- Documentation requirements: Invoice, bill of lading/airway bill, service contracts for AD bank
- FIRC issuance: Banks provide a Foreign Inward Remittance Certificate as payment proof
- Write-off procedures: Unrealised proceeds beyond 15 months need an AD bank application for regularisation
- Monitoring: AD banks track timelines through EDPMS (Export Data Processing and Monitoring System)
Reducing Costs on Inward Remittances
Traditional wire transfers impose high costs on exporters. Typical fee structure includes:
- Bank inward handling fee: ₹200 to ₹1,000
- Forex markup: 1.0% to 3.5% of transaction value
- FIRC issuance: ₹100 to ₹500
- Correspondent bank charges: Variable based on routing
For a ₹6,00,000 SaaS invoice, total fees reach ₹11,550, leaving net proceeds of ₹5,88,450.
Modern solutions like Razorpay MoneySaver Export Account reduce these costs by creating local collection accounts in buyer countries, avoiding SWIFT fees while maintaining full FEMA compliance.
How Razorpay MoneySaver Export Account Simplifies Inward Remittances
Create local currency accounts in markets such as the US, UK, and Europe to receive payments through local networks like ACH and SEPA, avoiding high SWIFT fees. This setup reduces forex and correspondent bank charges, lowers hidden spreads, and can save up to 50% on transaction costs while remaining fully compliant with FEMA. Automated e-FIRCs for each payment simplify export processing, ensure compliance with the 15-month deadline, and maintain clear audit trails for GST and income tax compliance.
Simplify Inward Remittances with Razorpay
Open local accounts in the US, UK & EU, receive via ACH/SEPA, skip SWIFT fees, and auto-generate e-FIRCs—fully FEMA-compliant.
Conclusion
Understanding current account transactions under FEMA involves knowing the approval schedules, LRS limits with TCS implications, and the 15-month export realisation timeline. Most routine international payments qualify as current account transactions unless specifically restricted.
Effective compliance requires checking Schedule I prohibitions and Schedule II approval requirements before remittance, monitoring the ₹10 lakh TCS threshold, and using automated export solutions that lower wire costs while providing instant e-FIRCs.
FAQs
1. What is the difference between a current account transaction and a capital account transaction under FEMA?
Current account transactions relate to routine payments such as trade, travel, or interest that do not change assets or liabilities. In contrast, capital account transactions involve activities such as overseas property purchases that alter assets or liabilities.
2. What is the LRS limit for the financial year 2025?
Under the Liberalised Remittance Scheme, resident individuals may remit up to $250,000 per financial year (April–March) for permitted current and capital account transactions without prior RBI approval.
3. Which current account transactions are prohibited under FEMA?
FEMA prohibits remittances from lottery winnings, racing income, the purchase of lottery tickets, and payments for banned magazines or sweepstakes.
4. Is government approval required for all current account transactions?
No. Approval is required only for specific transactions listed in Schedule II, such as certain cultural tours, high-value foreign advertisements by State Governments, and select PSU freight remittances.
5. What are the applicable TCS rates on foreign remittances in 2025?
For remittances above ₹10 lakh, TCS is 0.5% for loan-funded education, 5% for self-funded education or medical treatment, and 20% for other remittances, including overseas tour packages.
6. What is the time limit for realising export proceeds under FEMA?
Export proceeds must be realised and repatriated to India within 15 months from the date of export.
7. How can exporters reduce inward remittance costs?
Exporters can use solutions such as local-currency collection accounts to receive funds through domestic payment networks, reduce wire fees, and obtain automated e-FIRCs.
