# Capital Account Transactions — Schedule II: Permissible CAATs for a PROI

FEM (Permissible Capital Account Transactions) Regulations, 2000

Schedule II lists the CAATs which are permitted to a Person Resident Outside India (PROI). All other CAATs in India for a PROI are prohibited.

## Table — Permitted CAATs for PROI

Permissible Transaction by PROI	Limit
Hold/transfer/invest in Indian currency, Indian security or immovable property in India, where these were acquired/held/owned while the person was a PRII or inherited from a PRII	No limit/restriction
Acquisition and transfer of immovable property in India	Subject to specific regulations
Maintenance of foreign currency account in India — e.g., NRE (Non-Resident External) or FCNR (Foreign Currency Non-Resident) Account	Subject to specific regulations
Guarantee in favour of a PRII	Subject to specific regulations
Investment in India	Subject to specific regulations, subject to the prohibited businesses list below

## Prohibited Businesses — PROI Investment Bar

A PROI cannot invest in the following businesses:

1. Chit funds, Nidhi companies.

2. Agriculture or plantation activities.

3. Real estate — but with two exceptions:

REIT (Real Estate Investment Trusts) is allowed.
Development/construction of townships, premises, roads, bridges is allowed.

4. Construction of farm houses.

5. Trading in Transferable Development Rights (TDRs).

### What are TDRs?

A TDR is a certificate issued by the Central or State Government for land acquired by them for a public purpose without monetary compensation — the landowner gets development rights instead of cash.

## Power to Regulate Capital Account Transactions

Type of Instrument	Regulator
Non-debt instruments (e.g., equity shares, fully convertible debentures, units of investment funds)	Central Government
Debt instruments (e.g., NCDs, bonds, certain ECBs)	Reserve Bank of India (RBI)

## Memory Tools

"What was yours when you were a PRII stays yours" — mirror of the PRII rule. A PROI keeps unrestricted use of assets he held while resident.
Five Prohibited Investments by PROI: Chit/Nidhi, Agri/Plantation, Real Estate (except REIT & development), Farm houses, TDRs.
Two regulators rule: Non-debt → CG; Debt → RBI.

Worked example

### Example 1

Example 1 — Returning NRI's PRII-era property: B was a PRII while working in India for 10 years, and bought a flat in Mumbai. He has now moved abroad and become a PROI. Answer: He can continue to hold, transfer, let out or sell the flat freely — no FEMA limit applies.

### Example 2

Example 2 — Prohibited business: A US-resident NRI wants to invest in an Indian chit fund. Answer: Prohibited — chit funds are on the negative list for PROI investment.

### Example 3

Example 3 — Real estate exception: A foreign company wishes to invest in an Indian township development project. Answer: Permitted — township development is carved out from the real-estate prohibition (alongside REITs).

### Example 4

Example 4 — Farm house: A PROI wants to acquire a farm house in Punjab. Answer: Prohibited — construction of farm houses is on the negative list.

### Example 5

Example 5 — Equity in unlisted Indian Co: A foreign investor subscribes to equity shares in an Indian unlisted company. Answer: CAAT in non-debt instrument — regulated by the Central Government (subject to FDI policy).

⚠️ Common exam mistakes

Forgetting that the real-estate bar has carve-outs for REITs and for development of townships/premises/roads/bridges.
Allowing PROI investment in agriculture or plantation — completely prohibited.
Allowing PROI investment in farm-house construction or TDR trading.
Confusing the two regulators — equity (non-debt) is under Central Government; bonds/ECBs (debt) are under RBI.
Putting limits on the holding/use of assets acquired while the person was a PRII — those are unrestricted.
Treating NRE/FCNR account maintenance as a CUAT — it is a permitted CAAT for PROI.

Reference: Schedule II — Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000

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Capital Account Transactions — Schedule II (Permissible CAATs for PROI) and Power to Regulate

Worked example

⚠️ Common exam mistakes