UPSC Prelims Practice Questions — Individuals spared from new FEMA reporting: RBI

Q1. With reference to how the Foreign Exchange Management Act, 1999 classifies foreign exchange transactions, consider the following statements: Which of the statements given above is/are correct?

  1. A resident individual's purchase of a house abroad is a current account transaction, because it is settled through a one-time payment and creates no continuing obligation.
  2. A person resident outside India acquiring an asset in India is engaged in a capital account transaction.
  3. A loan given by a resident individual to a non-resident relative is a capital account transaction, even though no physical property changes hands.
  • A. 1 only
  • B. 1, 2 and 3
  • C. 1 and 2 only
  • D. 2 and 3 only

Q2. Under the Foreign Exchange Management Act, 1999, which one of the following, undertaken by a person resident in India, is a capital account transaction?

  • A. Paying the annual fee for a personal subscription to a foreign online journal
  • B. Placing money in a foreign currency deposit with a bank located abroad
  • C. Paying a foreign university the tuition fee for a child's degree course
  • D. Receiving payment from a foreign client against an invoice for design work

Q3. The Foreign Exchange Management Act, 1999 allows many breaches to be settled through compounding instead of prolonged proceedings. In this context, consider the following statements: Which of the statements given above is/are correct?

  1. A contravention covers breaches not only of the Act itself but also of rules, regulations, directions and circulars issued under it.
  2. Compounding allows a person to settle the matter by paying a sum while continuing to deny that any contravention took place.
  3. Every compounding application, whatever the contravention, is decided by the Directorate of Enforcement rather than by the RBI.
  • A. 1 only
  • B. 1, 2 and 3
  • C. 1 and 2 only
  • D. 2 and 3 only

Q4. With reference to the division of regulatory roles under the Foreign Exchange Management Act, 1999, consider the following statements: Which of the statements given above is/are correct?

  1. Prohibitions on drawing foreign exchange for specified current account transactions, such as remitting lottery winnings, are imposed by the RBI through its regulations.
  2. The range of capital account transactions that residents may undertake is laid down through RBI regulations.
  3. The time limit within which export proceeds must be realised and repatriated is set by the Foreign Trade Policy rather than by regulations made under FEMA.
  • A. 1 and 2 only
  • B. 1, 2 and 3
  • C. 2 only
  • D. 1 and 3 only

Q5. Consider the following statements: Which of the statements given above is/are correct?

  1. An individual in India who pays for a personal subscription to a foreign streaming app is, under the RBI's 2026 trade regulations, treated as an importer of services who must report the payment.
  2. A resident freelancer who invoices a foreign client for services rendered is an exporter of services even when billing in an individual capacity.
  • A. 1 only
  • B. 2 only
  • C. Both 1 and 2
  • D. Neither 1 nor 2

Q6. With reference to the Liberalised Remittance Scheme (LRS), consider the following statements: Which of the statements given above is/are correct?

  1. The LRS ceiling applies per financial year and covers permitted current and capital account remittances taken together.
  2. Besides resident individuals, partnership firms and Hindu Undivided Families can also remit under the LRS.
  3. Current account facilities for resident individuals, such as remittances for private visits, are subsumed within the overall LRS ceiling.
  • A. 3 only
  • B. 1 and 2 only
  • C. 1 and 3 only
  • D. 2 and 3 only

Q7. Consider the following facts: (I) In 1994 India accepted the obligations of Article VIII of the IMF's Articles of Agreement. (II) Residents in India may buy or sell foreign exchange for any current account transaction except those for which the Central Government has prohibited drawal. (III) Capital account transactions are permitted only to the extent specified in RBI regulations. (IV) Resident individuals may remit abroad for permitted capital account purposes only within a yearly ceiling. Which of the following inferences can validly be drawn from the above?

  1. The rupee is convertible on the current account, even though the government keeps the power to prohibit specified current transactions.
  2. Resident individuals enjoy full capital account convertibility, because they can remit for capital purposes without prior approval.
  3. Capital account convertibility in India remains partial, as capital transactions are allowed only to the extent regulations permit.
  4. Accepting Article VIII obligations did not by itself require India to remove limits on capital account transactions.
  • A. 3 and 4 only
  • B. 1, 2, 3 and 4
  • C. 1 and 2 only
  • D. 1, 3 and 4 only

Q8. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. India's acceptance of the IMF's Article VIII obligations in 1994 made the rupee convertible on the current account.
  2. Under the Liberalised Remittance Scheme, a resident individual may remit funds abroad for permitted capital account purposes, such as buying property, within a yearly ceiling.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct