# Current Account Transactions (CUAT) - Legal Framework

## Statutory Provision

> A person may sell or draw forex to or from an Authorised Person (AP) if such sale/drawal is a Current Account Transaction (CUAT).

## Role of Central Government (CG)

> The Central Government, in consultation with the RBI, may impose reasonable restrictions on Current Account Transactions.

## General Principle

CUATs are FREELY PERMITTED unless restricted by the CG or RBI.

This is the default position - if a transaction qualifies as a current account transaction and is not specifically restricted, it can be done freely with an Authorised Person.

## Governing Rules: FEM (Current Account Transactions) Rules, 2000

These Rules contain 3 Schedules:

Schedule	Nature of Transactions
Schedule I	Prohibited - Cannot be done at all
Schedule II	Restricted - Require prior CG approval
Schedule III	Restricted - Require prior RBI approval

## Decision Tree for Any CUAT

1. Is the transaction listed in Schedule I? → Prohibited (cannot be done)

2. Is it listed in Schedule II? → Need CG (Ministry) approval

3. Is it listed in Schedule III? → Need RBI approval

4. None of the above? → Freely permitted

Worked example

### Example 1

Example 1: Mr. A wants to remit USD 5,000 for purchase of a foreign lottery ticket. Analysis: This is in Schedule I (Prohibited). Conclusion: Not allowed.

### Example 2

Example 2: A multimodal transport operator wants to remit charges to its overseas agent. Analysis: Schedule II item - requires CG (Ministry of Surface Transport) approval through DGS registration.

### Example 3

Example 3: Mr. B wants to remit USD 1,000 for purchase of foreign books for personal study. Analysis: Not in any restrictive schedule. Conclusion: Freely permitted through AP.

⚠️ Common exam mistakes

Treating CUAT as restricted by default - actually, freedom is the default rule.
Confusing the three schedules - Schedule I = prohibited; Schedule II = CG approval; Schedule III = RBI approval.
Forgetting that CG must consult RBI before imposing restrictions.
Thinking that the restrictions must be 'absolute' - the Act only allows 'reasonable' restrictions.

Bare-Act text Section 5 · FEMA, 1999 · click to expand

A person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction. Provided that the Central Government may, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions for current account transactions as may be prescribed.

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Current Account Transactions - Legal Framework

Worked example

⚠️ Common exam mistakes