Schedule I, Schedule II & Prohibited Capital Account Transactions
# Capital Account Transactions - Three Categories
All Capital Account Transactions (CATs) fall into one of three categories:
```
CAT
|
----------------------------------
| | |
Schedule I Schedule II Prohibited
(permissible (permissible CAT
for PRI) for PROI)
```
## Schedule I - Permissible CAT for PRI
Contains the list of capital account transactions that Persons Resident in India can undertake (e.g., investment in foreign securities, ECB borrowings, etc.).
## Schedule II - Permissible CAT for PROI
Contains the list of capital account transactions that Persons Resident Outside India can undertake (e.g., investment in Indian securities, acquisition of Indian property, etc.).
## Prohibited Capital Account Transactions
### Rule: PROI Investment Restrictions
A PROI shall NOT invest in India in a company, firm or any entity that is engaged in any of the following businesses:
#
Prohibited Business
1
Nidhi Company
2
Business of Chit Fund
3
Real Estate Business (with exceptions - see below)
4
Agricultural / Plantation activities
5
Construction of farmhouse
6
Trading in Transferable Development Rights (TDRs)
### What 'Real Estate Business' EXCLUDES (i.e., Permitted)
The following are NOT treated as prohibited real estate business; PROI investment is allowed in:
1. Development of township
2. Construction of residential / commercial premises (including roads, bridges)
1. Approval is obtained from the Registrar of Chits (ROC) / State Government officer.
2. The investment complies with RBI directives under the FEMA framework.
## Quick Recap Table
Category
Who
What
Schedule I
PRI
Permissible CATs
Schedule II
PROI
Permissible CATs
Prohibited
PROI
Cannot invest in Nidhi, chit fund, real estate (with exclusions), agriculture, farmhouse construction, TDR trading
Worked example
### Example 1
Example 1 - Permitted Real Estate Investment:
A UK-based investor wants to invest in an Indian company that develops residential and commercial townships. This is permitted because development of township is excluded from the definition of 'real estate business' - it is treated as construction development, not real estate trading.
### Example 2
Example 2 - Prohibited TDR Trading:
A US fund proposes to invest in an Indian entity that buys and sells Transferable Development Rights (TDRs) in Mumbai. This is a prohibited CAT - PROI investment in TDR trading is not allowed.
### Example 3
Example 3 - REIT Investment:
A Singapore-based pension fund invests in a SEBI-registered Indian REIT. This is permitted - REITs are an excluded category from the real estate business prohibition.
### Example 4
Example 4 - Chit Fund Subscription:
Mr. Khan, an NRI based in Dubai, wishes to subscribe to a chit fund in Kerala. He may do so only after obtaining approval from the Registrar of Chits (Kerala SG) and ensuring RBI compliance. He cannot invest in a chit fund company as PROI investment in chit fund business is prohibited.
### Example 5
Example 5 - Farmhouse:
A Canadian NRI wants to invest in an Indian company that constructs farmhouses for sale to wealthy Indians. This is a prohibited CAT - construction of farmhouses by a company funded by PROI is not allowed.
⚠️ Common exam mistakes
Treating all real estate as prohibited - development of townships and construction of premises is permitted.
Confusing 'investment in chit fund company' (prohibited) with 'subscription to a chit by a PROI' (permitted with approvals).
Forgetting that REITs are excluded from the real estate prohibition.
Missing TDR trading as a prohibited activity.
Allowing PROI to invest in plantation/agricultural businesses - this is prohibited.
Bare-Act text Schedule I, Schedule II & Prohibited CAT (Rule 4 / NDI Rules) · Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 / Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 · click to expand
Schedule I lists permissible capital account transactions for persons resident in India. Schedule II lists permissible capital account transactions for persons resident outside India. A person resident outside India is prohibited from investing in India in any company, firm or entity engaged in the business of: (i) Nidhi company, (ii) chit fund business, (iii) real estate business (excluding development of township, construction of residential/commercial premises, roads, bridges, and Registered REITs), (iv) agricultural/plantation activities, (v) construction of farmhouses, and (vi) trading in Transferable Development Rights.