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JAIIB Paper 2 • General Banking Operations
Foreign Exchange Remittance Facilities for Individuals
From a student remitting tuition fees abroad to a tourist bringing home leftover dollars — every cross-border rupee movement by an individual runs through FEMA's remittance framework. Covers FEMA's evolution, key definitions, bringing in/taking out forex, inward and outward remittances, the Liberalised Remittance Scheme, and the Indo-Nepal Remittance Scheme, with 50 exam-style MCQs with hidden answers.
📅 Updated: September 2026 • 32 min read
📊 At a Glance
Facility
Key Limit
Liberalised Remittance Scheme (LRS)
USD 250,000 per financial year per resident individual
Carrying Indian currency abroad
Up to ₹25,000 (Nepal/Bhutan exceptions apply)
Indo-Nepal Remittance Scheme
Cross-border remittance to Nepal via NEFT, capped per transaction
1 Evolution of FEMA
1973The Foreign Exchange Regulation Act (FERA), 1973 — a stringent, criminal-law-style regime treating every forex violation as a punishable offence, reflecting India's forex-scarce, control-oriented economy.
1991Post-1991 liberalisation exposes FERA's rigidity as incompatible with India's opening economy and growing forex reserves.
1 June 2000The Foreign Exchange Management Act (FEMA), 1999 replaces FERA — a civil-law framework (contraventions are civil offences, not criminal), designed to facilitate external trade/payments and promote the orderly development of India's forex market, rather than merely restrict it.
💡
Memory Trick: "FERA Restricts, FEMA Facilitates"
The single biggest philosophy shift examiners test: FERA = Regulation/Restriction (criminal offences, forex conservation) vs FEMA = Management/Facilitation (civil offences, orderly forex market development).
2 Key Definitions
🏠
Person Resident in India
A person residing in India for more than 182 days in the preceding financial year (with exceptions for those coming/going for employment, business, or an uncertain-duration stay).
💱
Foreign Exchange
Foreign currency, and includes deposits, credits, balances payable in foreign currency, and drafts/travellers cheques/LCs/bills of exchange expressed in foreign currency.
🏦
Authorised Person
An Authorised Dealer (AD Category-I/II bank), money changer, or off-shore banking unit authorised by RBI to deal in foreign exchange.
📄
Current Account Transaction
A transaction other than a capital account transaction — e.g. payments for trade, travel, education, medical treatment — generally freely permitted subject to limits.
🏗️
Capital Account Transaction
A transaction that alters the assets/liabilities (including contingent liabilities) outside India of a resident, or in India of a non-resident — e.g. investments, borrowings — more tightly regulated.
3 Bringing In & Taking Out Foreign Exchange
Any person may bring into India foreign exchange without limit, subject to declaration requirements (e.g. the Currency Declaration Form for cash/travellers cheques above prescribed thresholds).
A person resident in India may take/send out of India foreign exchange for permissible current or capital account transactions, subject to limits (e.g. under LRS) and RBI/AD approval where required.
Indian currency may generally not be taken out of India beyond ₹25,000 per person, except when travelling to Nepal or Bhutan (where certain denominations are freely allowed and others restricted).
Residents returning from abroad may retain foreign currency notes/coins up to USD 2,000 (or equivalent) without surrendering, and unlimited foreign currency in the form of travellers cheques/drafts, subject to declaration norms.
4 Inward Remittances
📥
Rupee Drawing Arrangement (RDA)
Indian banks tie up with exchange houses/banks abroad (mainly Gulf/Southeast Asia) to enable NRIs to remit funds directly to beneficiaries' accounts in India in rupees.
💸
Money Transfer Service Scheme (MTSS)
A quick, cash-based inward remittance facility (e.g. for personal remittances like family maintenance) through tie-ups with overseas money transfer operators; outward remittance is not permitted under MTSS.
🌐
SWIFT-based Wire Transfer
Standard mode for larger inward remittances, routed via correspondent banking relationships and credited to the beneficiary's NRE/NRO/resident account.
5 Outward Remittances & the Liberalised Remittance Scheme (LRS)
🌍
Up to USD 250,000 Per Person Per Year
Under the Liberalised Remittance Scheme (LRS), all resident individuals (including minors, through a natural guardian) may freely remit up to USD 250,000 per financial year for permissible current or capital account transactions — including overseas education, medical treatment, travel, maintenance of relatives, gifting, and investment in shares/property abroad — without prior RBI approval, through an Authorised Dealer bank.
LRS remittances are not permitted for certain purposes — e.g. purchase of lottery tickets, margin trading, and remittance to countries identified by FATF as non-cooperative.
Remittances above prescribed thresholds attract TCS (Tax Collected at Source) under the Income Tax Act, collected by the remitting bank.
Outward remittances outside LRS purposes (e.g. certain capital account transactions by residents) are governed by specific FEMA regulations and may need RBI approval.
6 Indo-Nepal Remittance Scheme
What it is: A cross-border remittance facility allowing person-to-person remittances from India to Nepal, routed through the NEFT system — a remitter in India transfers funds to a beneficiary in Nepal without either party needing an account in the other country, via designated participating banks in both countries, subject to a per-transaction and cumulative cap.
The scheme was set up recognising the deep economic and people-to-people ties between India and Nepal, given the large Nepali workforce in India sending remittances home, and operates as a low-cost, RBI-facilitated alternative to informal (hawala-style) channels.
✓ Key Takeaways
FEMA, 1999 replaced the restrictive FERA, 1973, shifting from criminal-law control to civil-law facilitation of forex transactions.
Current account transactions are generally freely permitted; capital account transactions face tighter regulation.
Bringing forex into India is unrestricted (subject to declaration); taking it out is governed by permissible-purpose limits, notably the LRS cap of USD 250,000 per person per financial year.
Inward remittances flow via RDA, MTSS, and SWIFT wire transfers; MTSS permits inward-only remittance.
The Indo-Nepal Remittance Scheme uses NEFT to enable low-cost, account-free cross-border remittances to Nepal.
📝 Top 50 JAIIB-Style MCQs on Forex Remittance Facilities for Individuals
Test your understanding with these 50 practice MCQs, closely modelled on the JAIIB (PPB) exam pattern. Each question has 5 options — the correct answer is hidden by default; tap "Show Answer" to reveal it along with a short explanation.
📜 Evolution of FEMA
1 FEMA replaced which earlier law?
A. FERA, 1973
B. The Banking Regulation Act, 1949
C. The RBI Act, 1934
D. The Companies Act
E. The SEBI Act
Answer: A. FEMA replaced FERA, 1973.
2 FEMA came into force in:
A. 1991
B. 1999 (enacted), effective from June 2000
C. 1973
D. 2016
E. 1935
Answer: B. FEMA, enacted in 1999, took effect from 1 June 2000.
3 Compared to FERA, FEMA treats contraventions as:
A. Civil offences rather than criminal offences
B. Always criminal, with imprisonment mandatory
C. No offence at all, with zero consequences
D. Identical to FERA in every respect
E. Matters for international courts only
Answer: A. FEMA treats violations as civil offences.
4 FEMA's stated objective is to:
A. Facilitate external trade/payments and promote orderly forex market development
B. Ban all foreign exchange transactions
C. Criminalise every forex holder
D. Eliminate RBI's role in forex
E. Restrict India's trade with all countries
Answer: A. FEMA facilitates trade/payments and promotes orderly forex market development.
📖 Key Definitions
5 Under FEMA, a "person resident in India" is generally someone residing in India for more than how many days in the preceding financial year?
A. 182 days
B. 30 days
C. 365 days always, no exceptions
D. 90 days
E. 10 days
Answer: A. The general threshold is 182 days in the preceding financial year.
6 An "Authorised Person" under FEMA refers to:
A. An AD bank, money changer, or off-shore banking unit authorised by RBI to deal in forex
B. Any random individual
C. Only the Ministry of Finance
D. Only foreign embassies
E. Only SEBI-registered brokers
Answer: A. Authorised Persons are RBI-authorised entities dealing in forex.
7 A "current account transaction" under FEMA includes:
A. Payments for trade, travel, education, and medical treatment
B. Only property investment abroad
C. Only equity share purchases abroad
D. Only borrowings from abroad
E. No such category exists under FEMA
Answer: A. Trade, travel, education, medical payments are current account transactions.
8 A "capital account transaction" alters:
A. The assets/liabilities outside India of a resident, or in India of a non-resident
B. Only the price of imported goods
C. Nothing of financial significance
D. Only domestic tax liabilities
E. Only a bank's internal ledger
Answer: A. Capital account transactions alter cross-border assets/liabilities.
🔄 Bringing In & Taking Out Forex
9 Bringing foreign exchange into India is generally:
A. Unrestricted in amount, subject to declaration requirements above thresholds
B. Completely banned
C. Limited to USD 100 only
D. Allowed only for NRIs, never residents
E. Subject to a criminal penalty regardless of amount
Answer: A. Bringing forex in is unrestricted, subject to declaration above thresholds.
10 Indian currency taken out of India by a person is generally capped at:
A. ₹25,000 (with Nepal/Bhutan-specific rules)
B. No limit whatsoever
C. ₹1,000 only
D. ₹10 lakh
E. Indian currency can never leave India under any circumstance
Answer: A. The general cap is ₹25,000, with Nepal/Bhutan-specific rules.
11 A resident returning from abroad may retain foreign currency notes/coins up to:
A. USD 2,000 (or equivalent), without surrender
B. Unlimited cash with no cap
C. Zero; all forex must be surrendered instantly
D. USD 250,000
E. Only Indian currency, never foreign
Answer: A. Returning residents may retain up to USD 2,000 in forex cash.
A. Tax Collected at Source (TCS), collected by the remitting bank
B. No tax of any kind, ever
C. A criminal penalty automatically
D. GST at 28%
E. A stamp duty only
Answer: A. TCS applies to LRS remittances above prescribed thresholds.
19 Minors can access LRS:
A. Through a natural guardian remitting on their behalf
B. Never; LRS is barred for minors entirely
C. Only after turning 21
D. Only via a court order for every transaction
E. Only for medical purposes
Answer: A. A natural guardian can remit under LRS on a minor's behalf.
20 LRS remittances are routed through:
A. An Authorised Dealer (AD) bank
B. Any unregistered money changer
C. A postal service only
D. Directly through RBI counters
E. Cryptocurrency exchanges
Answer: A. LRS remittances go through an AD bank.
🇳🇵 Indo-Nepal Remittance Scheme
21 The Indo-Nepal Remittance Scheme enables cross-border remittance from India to Nepal via:
A. The NEFT system
B. Physical cash courier only
C. Cryptocurrency
D. Barter trade
E. No formal system; only informal channels
Answer: A. The scheme uses NEFT for India-to-Nepal remittances.
22 A key advantage of the Indo-Nepal Remittance Scheme is that:
A. Neither the remitter nor the beneficiary needs an account in the other country
B. Both parties must maintain accounts in both countries
C. It is available only to corporates, never individuals
D. It has no transaction cap
E. It replaces the LRS entirely
Answer: A. Neither party needs a cross-border account under this scheme.
23 The Indo-Nepal Remittance Scheme primarily serves as a low-cost alternative to:
A. Informal/hawala-style channels
B. The stock exchange
C. Government bonds
D. Insurance policies
E. Currency futures
Answer: A. The scheme offers a formal, low-cost alternative to informal/hawala channels.
🧩 Mixed / Comprehensive
24 Which of the following best captures the philosophical shift from FERA to FEMA?
A. From a scarcity-driven restrictive regime to a facilitative regime supporting a liberalising economy
B. No shift occurred; both laws are identical
C. FEMA is stricter than FERA in every respect
D. FEMA abolished all forex regulation entirely
E. FERA facilitated trade while FEMA restricted it
Answer: A. FEMA marked a shift from restriction to facilitation.
25 A student remitting USD 40,000 for tuition fees abroad in a financial year would use:
A. The LRS, well within the USD 250,000 annual cap
B. The Indo-Nepal Remittance Scheme only
C. MTSS, since it permits outward remittance
D. No facility exists for education remittances
E. A criminal-law exemption under FERA
Answer: A. Education remittance is a standard LRS use, within the cap.
26 Which of the following is TRUE about MTSS versus LRS?
A. MTSS is for inward personal remittances; LRS is for a resident's own outward remittances
B. MTSS and LRS are identical in every respect
C. MTSS allows outward remittance up to USD 250,000
D. LRS is for inward remittances only
E. Neither scheme exists under current FEMA rules
Answer: A. MTSS handles inward remittances; LRS handles a resident's outward remittances.
27 A returning NRI declaring foreign currency travellers cheques above the prescribed threshold at Indian customs is complying with:
A. Currency Declaration Form (CDF) requirements
B. LRS remittance rules
C. The Indo-Nepal Remittance Scheme
D. No requirement exists for travellers cheques
E. RDA norms
Answer: A. CDF declaration applies to forex cash/travellers cheques above thresholds.
28 Which of the following best explains why capital account transactions face tighter FEMA regulation than current account transactions?
A. They alter cross-border assets/liabilities, carrying greater implications for India's external financial stability
B. Capital account transactions are always smaller in value
C. There is no regulatory distinction between the two categories
D. Current account transactions are always larger and riskier
E. Capital account transactions are entirely banned under FEMA
Answer: A. Capital account transactions affect external asset/liability positions, warranting tighter oversight.
29 A Nepali worker in India wanting to send savings home in small, regular instalments would most appropriately use:
A. The Indo-Nepal Remittance Scheme via NEFT
B. LRS, capped at USD 250,000
C. A capital account transaction route
D. No facility exists for this purpose
E. RDA, meant for inward remittance into India
Answer: A. The Indo-Nepal Remittance Scheme suits regular India-to-Nepal transfers.
30 Which of the following would be classified as a current account transaction under FEMA?
A. Payment for imported machinery
B. Purchase of equity shares in a foreign company
C. Taking a loan from a foreign lender
D. Acquiring immovable property abroad
E. Opening a foreign subsidiary
Answer: A. Payment for imported goods is a current account transaction.
31 Which of the following would be classified as a capital account transaction under FEMA?
A. Acquiring immovable property abroad
B. Paying for a foreign holiday
C. Paying medical bills abroad
D. Remitting tuition fees
E. Paying for imported raw materials
Answer: A. Acquiring property abroad alters overseas assets — a capital account transaction.
32 Which of the following best describes why FEMA's civil-offence framework is considered more business-friendly than FERA's criminal framework?
A. Civil penalties (fines/compounding) avoid the harsher deterrent of imprisonment for routine commercial forex dealings
B. Civil offences carry harsher punishment than criminal offences
C. FEMA eliminated all penalties entirely
D. FERA never imposed any punishment
E. There is no practical difference between civil and criminal offences
Answer: A. Civil penalties like compounding are more business-friendly than criminal prosecution.
33 Which of the following bodies primarily administers/enforces FEMA in India?
A. RBI (regulation) and the Enforcement Directorate (enforcement of contraventions)
B. SEBI exclusively
C. IRDAI exclusively
D. PFRDA exclusively
E. Local municipal authorities
Answer: A. RBI regulates FEMA; the Enforcement Directorate handles contraventions.
34 Which of the following best describes an AD Category-I bank's role in outward remittances?
A. It processes and executes permissible remittances, verifying purpose and compliance with FEMA/LRS limits
B. It has no role in forex remittances
C. It can process remittances without any purpose verification
D. It only handles domestic rupee transactions
E. Only RBI itself can process remittances, never banks
Answer: A. AD banks process remittances, verifying purpose and limits.
35 Which of the following would NOT typically require prior RBI approval given standard FEMA rules?
A. An LRS remittance for medical treatment within the annual cap
B. A blanket exemption for any amount of any transaction
C. Every single capital account transaction without exception
D. Remittance to a FATF non-cooperative jurisdiction
E. Every outward remittance regardless of purpose
Answer: A. Standard LRS remittances within the cap don't need prior RBI approval.
36 Which of the following statements about gifting under LRS is TRUE?
A. Gifting to a relative abroad is a permissible purpose under LRS, within the annual cap
B. Gifting is entirely banned under FEMA
C. Gifting requires a separate RBI licence regardless of amount
D. Gifting is only allowed to relatives in Nepal
E. Gifting has no connection to LRS
Answer: A. Gifting is a permissible LRS purpose within the cap.
37 Which of the following would best explain the rationale for a per-financial-year (not lifetime) LRS cap?
A. It balances individual remittance freedom with periodic macro-monitoring of aggregate capital outflows
B. Annual caps have no monitoring purpose
C. A lifetime cap would be easier to monitor than an annual one
D. The cap resets every decade, not annually
E. There is no cap of any kind under LRS
Answer: A. An annual cap balances freedom with periodic outflow monitoring.
38 Which of the following is the most accurate description of "foreign exchange" as defined under FEMA?
A. Foreign currency and instruments/deposits/credits expressed or payable in foreign currency
B. Only physical foreign currency notes, nothing else
C. Only gold and silver
D. Only Indian rupees held abroad
E. Only cryptocurrency
Answer: A. Foreign exchange includes foreign currency and related instruments/deposits.
39 Which of the following individuals would be classified as "resident" under FEMA despite living abroad temporarily on a business trip lasting a few weeks?
A. An Indian employee on a short business trip who does not meet the "resident outside India" criteria
B. Any Indian citizen who has ever left India, permanently
C. No one; a single day abroad makes someone non-resident
D. Only diplomats
E. Only tourists
Answer: A. Short business trips don't change residency status under FEMA's test.
40 Which of the following best describes RDA's target user base?
A. NRIs, particularly in the Gulf/Southeast Asia, remitting to family in India
B. Only Indian residents remitting abroad
C. Only large corporates
D. Only tourists visiting India briefly
E. Foreign governments only
Answer: A. RDA primarily serves NRI remittances to India.
41 Which of the following statements about LRS and investment is accurate?
A. LRS permits investment in shares/property abroad within the annual cap
B. LRS bans any form of investment entirely
C. LRS permits investment only in Indian assets
D. Investment abroad requires a separate act, unrelated to FEMA
E. LRS applies only to trade payments, never investment
Answer: A. LRS permits overseas investment in shares/property within the cap.
42 Which of the following is a valid reason a bank would refuse an LRS remittance request?
A. The purpose falls under a prohibited category (e.g. margin trading) or the remitter has exceeded the annual cap
B. Banks can never refuse any LRS request
C. LRS has no prohibited categories at all
D. Only RBI, never a bank, can process or refuse LRS remittances
E. LRS caps apply only to corporates, not individuals
Answer: A. Prohibited purposes or exceeding the cap are valid refusal grounds.
43 Which of the following best summarises the relationship between FEMA and India's balance of payments?
A. FEMA's current/capital account distinctions help RBI monitor and manage cross-border flows that affect the balance of payments
B. FEMA has no connection to the balance of payments
C. FEMA applies only to domestic rupee transactions
D. The balance of payments is tracked only by SEBI
E. FEMA eliminates the need to track cross-border flows
Answer: A. FEMA's account classifications support balance-of-payments monitoring.
44 Which of the following best describes a "compounding" mechanism under FEMA?
A. A process letting a contravener settle a FEMA violation by paying a prescribed sum, avoiding prolonged litigation
B. A criminal trial process with mandatory imprisonment
C. A scheme for increasing LRS limits
D. A type of inward remittance
E. A tax exemption scheme
Answer: A. Compounding lets a violator settle via a prescribed payment.
45 Which of the following best explains why RBI/AD banks require purpose declaration for outward remittances?
A. To ensure the remittance is for a permissible purpose and complies with applicable limits/prohibitions
B. Purpose declaration serves no regulatory function
C. It is required only for inward remittances, never outward
D. Declaration is optional and rarely checked
E. It applies only to remittances above USD 1 million
Answer: A. Purpose declaration ensures compliance with permissible-purpose rules.
46 Which of the following would be an example of a permissible outward remittance outside the standard LRS route?
A. A company's FEMA-compliant capital account transaction under separate specific regulations (e.g. ODI)
B. No remittance is possible outside LRS under any circumstance
C. Only individuals, never companies, can remit abroad
D. LRS is the only route ever available for any entity
E. Companies are entirely barred from any cross-border transaction
Answer: A. Companies use separate FEMA regulations (like ODI) outside individual LRS.
47 Which of the following best describes why the Indo-Nepal Remittance Scheme is notable within FEMA's broader remittance framework?
A. It is a special bilateral arrangement addressing the unique India-Nepal economic and labour relationship, distinct from LRS's general-purpose global remittance
B. It applies to every country, not just Nepal
C. It has replaced LRS for all Indian residents
D. It is identical in structure and purpose to LRS
E. It applies only to corporate remittances
Answer: A. The scheme is a special bilateral facility reflecting India-Nepal ties.
48 Which of the following statements about foreign currency drafts/travellers cheques under FEMA's definition of "foreign exchange" is accurate?
A. They are included within the definition of foreign exchange when expressed in foreign currency
B. They are excluded entirely from the definition
C. Only physical currency notes qualify as foreign exchange
D. Travellers cheques are treated as Indian currency
E. Drafts have no connection to FEMA at all
Answer: A. Foreign-currency-denominated drafts/travellers cheques fall within "foreign exchange."
49 Which of the following would best illustrate how FEMA's facilitative approach supports India's globalised economy?
A. A liberal, cap-based scheme like LRS lets ordinary residents transact globally without case-by-case RBI approval, unlike FERA's restrictive era
B. FEMA bans all individual cross-border transactions
C. FEMA requires RBI's individual sign-off for every single small remittance
D. FEMA has made cross-border transactions harder than under FERA
E. FEMA applies only to government transactions
Answer: A. LRS exemplifies FEMA's liberal, facilitative approach versus FERA's restrictiveness.
50 Overall, which statement best summarises this topic?
A. FEMA (1999) replaced the restrictive FERA with a facilitative framework distinguishing current/capital account transactions, enabling individuals to bring in forex freely, remit outward up to USD 250,000/year under LRS, receive inward remittances via RDA/MTSS/SWIFT, and use the special Indo-Nepal Remittance Scheme for India-Nepal transfers
B. FEMA bans all forex transactions by individuals
C. LRS and the Indo-Nepal Remittance Scheme are identical schemes
D. Only corporates can remit money abroad under FEMA
E. FERA remains in force alongside FEMA today
Answer: A. This correctly captures the full forex remittance framework for individuals.
Disclaimer: This article is prepared for educational and exam-preparation purposes only, summarising FEMA remittance rules as of September 2026. Candidates should cross-check the latest official IIBF syllabus and RBI Master Directions before the exam.