# Classification of Capital Account Transactions (CAT) under FEMA

Under the Foreign Exchange Management Act, 1999, Capital Account Transactions (CAT) are classified into three broad categories based on the schedules notified by the RBI under the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations.

## The Three Categories

Category	Applicability	Nature
Schedule I	Permissible CAT for PROI (Person Resident Outside India)	List of transactions a non-resident may undertake in India
Schedule II	Permissible CAT for PRI (Person Resident in India)	List of transactions a resident may undertake outside India
Prohibited CAT	Applies to both PRI and PROI	Transactions which are completely barred

## Key Principle

Any CAT that is not specifically permitted under Schedule I or Schedule II is prohibited unless permitted by RBI / Central Government.
Schedules I and II are exhaustive lists — one must check the schedule for the relevant person (resident/non-resident) before concluding permissibility.

## Quick Recall Map

```

Capital Account Transactions (CAT)

------------------------------------------

| | |

Schedule I Schedule II Prohibited CAT

(PROI) (PRI) (Both PRI & PROI)

```

## Why This Classification Matters

FEMA distinguishes residents from non-residents because the policy objective differs:

For PROI → India regulates inward capital flows.
For PRI → India regulates outward capital flows.
For certain sensitive sectors / countries → an outright prohibition is necessary regardless of who is transacting.

Worked example

### Example 1

Example 1: Mr. X, a US citizen residing in New York (PROI), wishes to acquire shares of an Indian company. → Permissibility must be checked under Schedule I (CAT permissible for PROI).

### Example 2

Example 2: Ms. Y, ordinarily resident in India (PRI), wishes to acquire immovable property in Dubai. → Permissibility must be checked under Schedule II (CAT permissible for PRI).

### Example 3

Example 3: Mr. Z, a PROI, wishes to invest in an Indian company engaged in chit fund business. → This falls under Prohibited CAT — no schedule permits it.

⚠️ Common exam mistakes

Confusing which schedule applies to whom — Schedule I = PROI, Schedule II = PRI (students often reverse them).
Assuming a transaction is permitted just because it is not expressly prohibited; under FEMA, CAT must be specifically permitted in the schedule, else it is barred.
Forgetting that 'Prohibited CAT' is a separate category that overrides Schedules I & II.

Bare-Act text Section 6(2) & (3); Schedules I and II of the Regulations · FEMA, 1999 & FEM (Permissible Capital Account Transactions) Regulations, 2000 · click to expand

Section 6(2) of FEMA, 1999 read with Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 — Reserve Bank may specify any class of capital account transactions involving debt instruments which are permissible. Schedule I lists permissible CAT for PROI; Schedule II lists permissible CAT for PRI.

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