Liberalised Remittance Scheme - Summed Up !!

Introduction

With the continued integration of the global economy, more countries are finding it necessary to cooperate with each other for the good of their individual economies. This has lead to a massive increase in travelling of both the resident and non-resident around the globe for various purposes viz business, education, employment, medical treatments etc.

In order to provide a liberalized measure to the Resident Individuals in India, the Reserve Bank of India (RBI) introduced Liberalised Remittance Scheme (LRS) on February 4, 2004, vide A.P. (DIR Series) Circular No. 64 dated February 4, 2004 read with GoI Notification G.S.R. No.207(E) dated March 23, 2004.

What is LRS ?

The Liberalised Remittance Scheme (LRS), is a guideline issued by RBI for Resident Individuals, including Minors, to freely remit up to USD 250,000 per financial year (April – March) for certain permissible current or capital account transaction or a combination of both as explained further in this article.

Note- Only Resident Individuals including minors are eligible under the LRS, the Scheme is not available to corporates, partnership firms, HUF, Trusts, etc.

Limit of LRS

The present limit upto which the Residents individuals can freely remit the funds has been updated to USD 250,000. The LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions. During the period from February 4, 2004 till date, the LRS limit has been revised as under:

Date	Feb 4, 2004	Dec 20, 2006	May 8, 2007	Sep 26, 2007	Aug 14, 2013	Jun 3, 2014	May 26, 2015
LRS Limit (USD)	25,000	50,000	100,000	200,000	75,000	125,000	250,000

 

Documentary Requirements

The resident individual seeking to make the remittance should furnish Form A2 (available on https://rbidocs.rbi.org.in/rdocs/content/pdfs/03MD11022016_AN.pdf) for purchase of foreign exchange under LRS.

Further it would be mandatory for the resident individual to provide his/her Permanent Account Number (PAN) to make remittance under this scheme.

In case of remitter being a minor, the Form A2 must be countersigned by the minor’s natural guardian.

Permitted Transactions

Capital and Current Account Transactions

Under the Liberalised Remittance Scheme, Authorised Dealers may freely allow remittances by resident individuals up to USD 2,50,000 per Financial Year (April-March) for any permitted current or capital account transaction or a combination of both.

Capital Account Transactions

Current Account Transactions

i.    Opening of foreign currency account abroad with a bank; ii.    Purchase of property abroad; iii.   Making investments abroad:- ·       acquisition and holding shares of both listed and unlisted overseas company or debt instruments; ·       acquisition of qualification shares of an overseas company for holding the post of Director; ·       acquisition of shares of a foreign company towards professional services rendered or in lieu of Director’s remuneration; ·      investment in units of Mutual Funds, Venture Capital Funds, unrated debt securities, promissory notes; iv.  Setting up Wholly Owned Subsidiaries (WOS) and Joint Ventures(JV) outside India for bonafide business subject to certain terms & conditions (explained below)** v.    Extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are Relatives.

i.      Private visit;      ii.     Gift/Donation;      iii.     Going abroad on employment;      iv.      Emigration;      v.      Maintenance of close relatives abroad;      vi.     Business trip;      vii.     Medical treatment abroad      viii.     Studies abroad

Notes

• General

Ø    The maximum limit of remittances for the above transactions is USD 250,000 for a Financial Year (April-March)

Ø    No restriction on frequency of remittances, subject to the above monetary limit.

Ø    Remittances under the Scheme can be consolidated in respect of family members. The clubbing may be permitted with other family members for capital account transactions such as opening a bank account/investment/purchase of property, only if they are the co-owners/co-partners of the overseas bank account/ investment/property.

• Relatives as per section 2(77) of Companies Act,2013 includes the following:-

-          Members of Hindu Undivided Family (HUF)

-          Husband and Wife

-          Father (including step father)

-          Mother (including step mother)

-          Son (including step son)

-          Son’s wife

-          Daughter

-          Daughter’s husband

-          Brother (including step brother)

-          Sister (Including step sister)

Ø  Individuals can also open, maintain and hold foreign currency accounts with a bank outside India for making remittances under the Scheme without prior approval of the Reserve Bank. The foreign currency accounts may be used for putting through all transactions connected with or arising from remittances eligible under this Scheme. 

•    Capital Account Transctions

Ø  **Conditions for setting up WOS/JV abroad (i.e. overseas Direct investment):-

·   Investment in a JV or WOS abroad which is engaged in the real estate business or banking business or in the business of financial services activity is prohibited.

·     The JV or WOS abroad shall be engaged in bonafide business activity.

·   Resident individual is prohibited from making direct investment in a JV / WOS  located in the countries identified by the Financial Action Task Force (FATF) as "non co-operative countries and territories".

·   The resident individual shall not be on the Reserve Bank’s Exporters Caution List or List of defaulters to the banking system or under investigation by any investigation / enforcement agency or regulatory body.

·      At the time of investments, the permissible ceiling shall be within USD 250,000.

·     The JV or WOS, to be acquired / set up by a resident individual, shall be an operating entity and no step down subsidiary is allowed to be acquired or set up by the JV or WOS.

·      For the purpose of making investment under this Schedule, the valuation shall be as follows:

a.   where the investment is more than USD 5 (Five) million, by a Category I Merchant Banker Registered with Securities and Exchange Board of India (SEBI), or an Investment Banker/Merchant Banker outside India registered with the appropriate regulatory authority in the host country; and

b.   in all other cases, by a Chartered Accountant or a Certified Public Accountant.

·     The financial commitment by a resident individual to / on behalf of the JV or WOS, other than the overseas direct investments as defined under Regulation 2(e) read with Regulation 20A of this Notification, is prohibited.

Ø  Investor, who has remitted funds under LRS can retain, reinvest the income earned on the investments. At present, the resident individual is not required to repatriate the funds or income generated out of investments made under the Scheme.

Ø  Banks are not allowed to extend any kind of credit facilities to resident individuals to facilitate capital account remittances under the Scheme.

 

•         Current Account Transactions

Ø  For Private Visits all tour related expenses including cost of rail/road/water transportation; cost of Euro Rail; passes/tickets, etc. outside India; and overseas hotel/lodging expenses shall be subsumed under the LRS limit.

Ø  In case of Emigration the remittance of any amount of foreign exchange outside India in excess of this LRS limit of USD 250,000 may be allowed only towards meeting incidental expenses in the country of immigration and not for earning points or credits to become eligible for immigration by way of overseas investments in government bonds; land; commercial enterprise; etc.

Ø  Business Visits includes visits by individuals in connection with attending of an international conference, seminar, specialised training, apprentice training, etc.

Ø  In case, an employee is being deputed for business visits and the expenses are borne by the entity, such expenses shall be treated as residual current account transactions outside LRS and may be permitted by the AD without any limit, subject to verifying the bonafides of the transaction.     

Ø  In case of medical treatments abroad, foreign exchange up to an amount of USD 2,50,000 or its equivalent per FY may be released by AD without insisting on any estimate from a hospital/doctor. In case such expense exceed the limit AD may release the foreign exchange based on the estimate Doctor in India or Hospital/Doctor abroad, without seeking prior approval of RBI.

Further, an amount up to USD 250,000 per financial year is allowed to a person for accompanying as attendant to a patient going abroad for medical treatment/check-up.

Ø  In case of studies abroad, foreign exchange up to an amount of USD 2,50,000 or its equivalent per FY may be released by AD without insisting on any estimate from the foreign University. In case such expense exceeds the limit AD may release the foreign exchange based on the estimate of the foreign university, without seeking prior approval of RBI. 

Facility to grant loan in rupees to NRI/ PIO close relative under the Scheme

The Resident individual is permitted to lend to a Non-resident Indian (NRI)/ Person of Indian Origin (PIO) close relative [as explained above] by way of crossed cheque/ electronic transfer subject to the following conditions:

(i) Interest free loan with minimum maturity of 1 (one) year;

(ii) the loan amount should be within the overall limit under the Liberalised Remittance Scheme. It would be the responsibility of the resident individual to ensure that the amount of loan granted by him is within the LRS limit

(iii) The loan shall be utilized for meeting the borrower’s personal requirements or for his own business purposes in India.

(iv) the loan shall not be utilized, either singly or in association with other person for any of the activities in which investment by persons resident outside India is prohibited, namely:

a.       The business of chit fund, or

b.       Nidhi Company, or

c.       Agricultural or plantation activities or in real estate business, or construction of farm houses, or

d.       Trading in Transferable Development Rights (TDRs).

Explanation: For the purpose of item (c) above, the investments in development of townships, construction of residential/ commercial premises, roads or bridges are allowed .

(v) the loan amount should be credited to the NRO a/c of the NRI / PIO. Credit of such loan amount may be treated as an eligible credit to NRO a/c;

      Note- Non-Resident (Ordinary) Rupee Account (NRO Account) is a savings or current account held by NRIs in India to manage their income earned in India. Account-holders can deposit and manage their accumulated rupee funds without any hassle. The account allows one to receive funds in Indian or Foreign currency.

(vi) the loan amount shall not be remitted outside India; and

(vii) repayment of loan shall be made by way of inward remittances through normal banking channels or by debit to the Non-resident Ordinary (NRO) / Non-resident External (NRE) / Foreign Currency Non-resident (FCNR) account of the borrower or out of the sale proceeds of the shares or securities or immovable property against which such loan was granted.

GIFT

A resident individual can make a rupee gift to a NRI/PIO who is a relative, by way of crossed cheque /electronic transfer. The amount should be credited to the NRO a/c of the NRI / PIO and credit of such gift amount may be treated as an eligible credit to NRO a/c. The gift amount would be within limit permitted under the LRS for a resident individual.

However, a resident cannot gift to another resident, in foreign currency, for the credit of the latter’s foreign currency account held abroad under LRS.

Prohibited Sectors

The remittance facility under the Scheme is not available for the following:

1. Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery tickets/sweep stakes, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000.
2. Remittance from India for margins or margin calls to overseas exchanges / overseas counterparty.
3. Remittances for purchase of FCCBs issued by Indian companies in the overseas secondary market.
4. Remittance for trading in foreign exchange abroad.
5. Capital account remittances, directly or indirectly, to countries identified by the Financial Action Task Force (FATF) as “non- cooperative countries and territories”, from time to time.
6. Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.

FAQs

Q1) What is the Maximum limit of LRS and its frequency ?

Ans. Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.

     Further there are no restrictions on the frequency of remittances under LRS. However, the total amount of foreign exchange purchased from or remitted through, all sources in India during a financial year should be within the cumulative limit of USD 2,50,000.

Q2) What are the requirements to be complied with by the remitter?

Ans. The individual will have to designate a branch of an AD through which all the capital account remittances under the Scheme will be made. The applicants should have maintained the bank account with the bank for a minimum period of 1 year prior to the remittance.

For remittances pertaining to permissible current account transactions, if the applicant seeking to make the remittance is a new customer of the bank, Authorised Dealers should carry out due diligence on the opening, operation and maintenance of the account. Hence no requirement to maintain account for minimum 1 year.        

Further, the AD should obtain bank statement for the previous year from the applicant to satisfy themselves regarding the source of funds. If such a bank statement is not available, copies of the latest Income Tax Assessment Order or Return filed by the applicant may be obtained. He has to furnish Form A-2 regarding the purpose of the remittance and declare that the funds belong to him and will not be used for purposes prohibited or regulated under the Scheme.

Q3) Can remittances be made only in US Dollars?

Ans. The remittances can be made in any freely convertible foreign currency.

Q4) Will the expenses incurred by an LLP to sponsor the education expense of its partners who are pursuing higher studies for the benefit of the LLP will be outside the LRS limit of such individuals (partners)?

Ans. LLP is a body corporate and has a legal entity separate from its partners. Therefore, if the LLP incurs/sponsors the education expense of its partners who are pursuing higher studies for the benefit of the LLP, then the same shall be outside the LRS limit of the individual partners and would instead be deemed as residual current account transaction undertaken by the LLP without any limits.

Q5)  Clarification on remittance by sole proprietor under LRS.

Ans. In a sole proprietorship business, there is no legal distinction between the individual / owner and as such the owner of the business can remit USD up to the permissible limit under LRS. If a sole proprietorship firm intends to remit the money under LRS by debiting its current account then the eligibility of the proprietor in his individual capacity has to be reckoned. Hence, if an individual in his own capacity remits USD 250,000 in a financial year under LRS, he cannot remit another USD 250,000 in the capacity of owner of the sole proprietorship business as there is no legal distinction.

Q6) What is maximum limit of Foreign currency notes and coins sold to foreign travellers?

Ans. Out of the overall foreign exchange (USD 250,000 per financial year) being sold to a traveller, exchange in the form of foreign currency notes and coins may be sold up to the limit indicated below:

       i.    Travellers proceeding to countries other than Iraq, Libya, Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States - not exceeding USD 3000 per visit or its equivalent.

       ii.     Travellers proceeding to Iraq or Libya - not exceeding USD 5000 per visit or its equivalent

     iii.     Travellers proceeding to Islamic Republic of Iran, Russian Federation, other Republics of Commonwealth of Independent States - full exchange may be released.

     iv.     Travellers proceeding for Haj/Umrah pilgrimage- full amount of entitlement in cash or up to the cash limit as specified by the Haj Committee of India, may be released.

Q7) Who is responsible to ensure compliance ?

Ans. AD will be guided by the nature of transaction as declared by the remitter in Form A2 and will thereafter certify that the remittance is in conformity with the instructions issued by the Reserve Bank in this regard from time to time. However, the ultimate responsibility is of the remitter to ensure compliance to the extant FEMA rules/regulations.

Q8) Is the remittance under LRS allowed for a specific transaction only ?

Ans. Authorised Dealers may freely allow remittances by resident individuals up to USD 2,50,000 per Financial Year (April-March) for any permitted current or capital account transaction or a combination of both.