FEMA 1999 Section 6: Capital Account Transactions (2026)

Explainer · Economic Law · FEMA

Updated for 2026 · Claw Editorial

Section 6 of FEMA, 1999 governs capital account transactions. These are the cross-border deals that change what you own or owe abroad, such as foreign direct investment, buying shares or property overseas, external borrowing, and guarantees. Unlike day-to-day trade payments, which are current account transactions under Section 5, capital account transactions are more tightly controlled. Since the Finance Act, 2015, the power to regulate them is split between the Central Government and the Reserve Bank of India. This page explains what a capital account transaction is, how Section 6 works today, and the penalty for breaking the rules. Last verified October 2026.

01The short answer

Section 6 is the capital account section of FEMA. A capital account transaction is one that changes the assets or liabilities outside India of a person resident in India, or the assets or liabilities in India of a person resident outside India. In plain terms, it is a deal that alters your cross-border balance sheet, not just a trade payment.

Section 6 allows these transactions only to the extent they are permitted. The Reserve Bank of India, in consultation with the Central Government, and after the Finance Act, 2015 the Central Government directly for certain instruments, specify which classes of capital account transactions are allowed and up to what limit.

02Capital account versus current account

FEMA splits all cross-border transactions into two buckets, and the controls differ sharply.

So a payment for imports is a current account transaction and is largely free. Buying shares in a foreign company is a capital account transaction and is allowed only within the specified rules.

03How Section 6 works today

Section 6(1) allows a person to draw or sell foreign exchange from an authorised person for a capital account transaction. The regulator may specify the permissible classes of capital account transactions and the limits for them, and may restrict transactions in some cases.

Because of this, the modern reader of Section 6 must look not only at the section but also at the rules and regulations made under it.

04The 2015 split: non-debt and debt

After the 2015 amendment, capital account transactions are regulated under two separate sets of rules, by two different authorities.

• Non-debt instruments: the Central Government makes the rules. These are the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, notified on 17 October 2019. They cover equity, foreign direct investment, capital in an LLP, and units of investment vehicles.
• Debt instruments: the Reserve Bank of India makes the regulations. These are the Foreign Exchange Management (Debt Instruments) Regulations, 2019.

The 2019 rules superseded the older regulations on transfer of securities and immovable property, so the modern framework for foreign investment flows from Section 6 read with these rules.

05Permitted and restricted transactions

Not every capital account transaction is open. The regulator classifies them into those that are permitted, those that need prior approval, and those that are prohibited.

• Permitted: many transactions are allowed automatically within set limits, such as foreign direct investment into most sectors under the automatic route.
• Approval route: some need the prior approval of the government or the regulator, such as investment into sensitive sectors.
• Prohibited or capped: some sectors and transactions are closed or subject to sectoral caps.

A resident may also hold or own foreign assets acquired when they were resident outside India, and a non-resident may hold Indian assets acquired when resident in India, as Section 6 itself recognises.

06Penalty and enforcement

FEMA is a civil law. A capital account transaction done outside the permitted framework, such as an unreported foreign investment or an overseas acquisition without approval, is a contravention, not a crime in the first instance.

Under Section 13, the penalty can go up to three times the sum involved where that amount is quantifiable, or up to two lakh rupees where it is not, with a further penalty for each day a continuing contravention lasts. The Enforcement Directorate investigates, the matter is adjudicated under Section 16, and most contraventions can be regularised through compounding. For that, see compounding under FEMA. The core prohibition on dealing is explained in Section 3 of FEMA.

07Where Claw fits

Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.

How Section 6 and the 2019 rules have been applied to a foreign investment or an overseas acquisition, and how penalties have been fixed, turns on the case law and the adjudication orders. Claw lets you search more than 30 crore judgments on Section 6 of FEMA, by party or advocate, with results in under 5 seconds, and reported authority runs from Supreme Court rulings of 1950 and High Court rulings of 1990 to the latest orders. You can also follow a live matter, with its orders and hearings, across 9,102 courts, benches and forums. Claw does not use the documents you upload to train its AI models.

Create a free Claw account to see how Section 6 of FEMA has been applied and to track a pending matter. To research the wider body of law, see case search across Indian courts.

08Sources and further reading

• India Code (official text of FEMA, 1999): indiacode.nic.in
• Reserve Bank of India (FEMA regulations and master directions): rbi.org.in
• Department of Economic Affairs (Non-debt Instruments Rules): dea.gov.in
• Claw: clawlaw.in

This explainer is general information, not legal advice. The law changes through amendments, notifications and judgments, so check the current text and take advice from counsel before you act.

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