# Capital Account Transactions — Schedules I (PRI) and II (PROI)
Unlike current account transactions (open by default), capital account transactions are prohibited by default. They are permitted only if listed in Schedule I (for PRIs) or Schedule II (for PROIs) of the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000, subject to RBI conditions.
## A. Schedule I — Permissible Capital Account Transactions for a PRI
A PRI may, subject to RBI approval/conditions, undertake:
#
Transaction
Direction
1
Foreign security (investment in)
In or outside India
2
Foreign derivative contracts
In or outside India
3
Foreign currency loan raised
—
4
Foreign currency account in India (e.g. EEFC)
—
5
Capital asset
Outside India
6
Immovable property
Outside India
7
Commodity derivative
—
8
Loan given to or taken from PROI
With/from PROI
9
Guarantee in favour of PROI
With/from PROI
10
Currency / Import / Export / Holding of foreign currency
—
11
Insurance from an insurance company outside India
—
## B. Schedule II — Permissible Capital Account Transactions for a PROI
A PROI may, subject to RBI approval/conditions, undertake:
#
Transaction
Direction
1
Capital asset in India
In India
2
Immovable property in India
In India
3
Investment in India (shares, FDI, etc.)
In India
4
Foreign currency account in India
In India
5
Deposits given to/taken from PRI
With PRI
6
Guarantee in favour of PRI
With PRI
7
Currency / Import / Export / Holding
—
## C. Reading the two Schedules together
The Schedules are mirror images:
Schedule I focuses on a PRI altering assets/liabilities outside India.
Schedule II focuses on a PROI altering assets/liabilities inside India.
Both are subject to specific RBI Master Directions for each category (ODI, FDI, ECB Regulations, etc.).
## D. Practical exam patterns
Question pattern
Check
PRI gives loan abroad
Schedule I #8 — capital account
PROI buys Indian shares
Schedule II #3 — FDI/FPI
PRI invests in foreign listed shares
Schedule I #1 — Foreign Security, via LRS
PROI opens NRE account
Schedule II #4
PRI holds EEFC account
Schedule I #4
Worked example
### Example 1
Example 1 — Buying foreign shares
Mr. R, PRI, buys Tesla shares via LRS.
Answer: Acquiring foreign security — Schedule I #1. Routed via LRS within US $250,000/year.
### Example 2
Example 2 — FDI in Indian company
A German company buys 30% equity in an Indian start-up.
Answer: PROI investing in India → Schedule II #3, subject to FDI Regulations.
### Example 3
Example 3 — Loan by Indian parent to foreign subsidiary
ABC Ltd (PRI) lends US $5 million to its UK subsidiary.
Answer: PRI giving a loan to PROI → Schedule I #8, subject to ODI / FEMA loan regulations.
### Example 4
Example 4 — Guarantee by foreign parent
US parent guarantees its Indian subsidiary's bank loan.
Answer: PROI giving guarantee in favour of PRI → Schedule II #6.
⚠️ Common exam mistakes
Treating all foreign investments as freely permitted — capital account transactions are prohibited unless explicitly listed.
Forgetting that contingent liabilities (e.g. guarantees) are capital for PRIs only, not PROIs.
Mixing up Schedule I (PRI outward) with Schedule II (PROI inward).
Ignoring sector-specific RBI regulations — the Schedules enable the transaction; specific FDI/ODI/ECB Regulations govern the conditions.
Bare-Act text Section 6 and Schedules I & II of the Regulations · FEMA, 1999 read with Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 · click to expand
Section 6(2) — The Reserve Bank may, in consultation with the Central Government, specify (a) any class or classes of capital account transactions which are permissible; (b) the limit up to which foreign exchange shall be admissible for such transactions. Section 6(3) lists illustrative capital account transactions including: transfer or issue of foreign security by a person resident in India; transfer or issue of any security by a person resident outside India; any borrowing or lending in foreign exchange; any borrowing or lending in rupees between a person resident in India and a person resident outside India; deposits between persons resident in India and persons resident outside India; acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India; acquisition or transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India; giving of a guarantee or surety in respect of any debt, obligation or other liability incurred by a person resident in India and owed to a person resident outside India or vice versa.