Module: | Penalties, Adjudication and Sections
Q19: An Indian parent company, provides a corporate guarantee to a foreign bank, to secure a loan for its overseas subsidiary. How is this transaction classified under FEMA?
✅ Correct Answer: B
Under Section 2(e) of FEMA, a Capital Account Transaction includes transactions that alter the assets or liabilities (including contingent liabilities) outside India of a person resident in India.
A corporate guarantee creates a contingent liability (an obligation to pay if the subsidiary defaults) towards a non-resident lender, making it a Capital Account Transaction.
A corporate guarantee creates a contingent liability (an obligation to pay if the subsidiary defaults) towards a non-resident lender, making it a Capital Account Transaction.