Question

Identify whether the following transactions will be classified as Current or Capital account transactions also please provide reasons for same.

(A).An american insurance company invests in a property in India and pays out of its bank account kept in Delhi?

(B) An Indian citizen enjoys a meal at a restaurant in England and pays with her HDFC credit card ?

(C) A UK immigrant living in Pune sends a cheque drawn from his Pune bank account as a gift to his parents living in London ?

(D) An Indian professional is hired by an Italian company for consulting and gets paid from the Indian bank account maintained by the French company?

Answer 1

Dear Student,

Nice Question you have asked.

I below mentioned specific answer as desired with the reasons:-

First we will address the definition of Capital and Current Transactions.

Meaning Capital Transactions: - "A transaction affecting non-current items such as fixed assets, long-term debt, or share capital. Such as Investment in properties, personal expenses etc.

Meaning Current Transactions : Transactions which are not in the nature of Capital Transactions such as monthly salaries,monthly expenses etc.

(A).An american insurance company invests in a property in India and pays out of its bank account kept in Delhi?

capital account. - It is a Investment in Property  Hence classified as Capital Transaction

(C) A UK immigrant living in Pune sends a cheque drawn from his Pune bank account as a gift to his parents living in London ?

Capital account. - This is personal expenses of taking care of his parents and doesn't effect the revenue part Hence it is related capital Transaction.

(D) An Indian professional is hired by an Italian company for consulting and gets paid from the Indian bank account maintained by the French company?

current account. - This is pure revenue transaction as these are monthly revenue transaction.

(B) An Indian citizen enjoys a meal at a restaurant in England and pays with her HDFC credit card ?

Current account. - This effects  the revenue part of Citizen Pocket Hence it is classified as Current Transaction.

Hope this gives conceptual clarity to you.

Thanking You.