Remittance outside India by Residents – Liberalised Remittance Scheme

Remittance outside India by Residents – Liberalised Remittance Scheme

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Much has been talked about investments by NRIs in India or remittance by them outside India. The Foreign Exchange Management Act, 1999 not only deals with NRI transactions in India, but also provides for remittances or investments by Indian residents outside India.

Under the Liberalised Remittance Scheme (‘LRS’), all resident individuals including minors are allowed to freely remit upto USD 250,000 per financial year (i.e. April – March) for carrying out permissible transactions outside India. The Scheme is not available to corporates, partnership firms, HUF, Trusts, etc.

The main features of this scheme are listed below:

  • Permissible transactions:
    • Opening of foreign currency account abroad with a bank;
    • purchase of property abroad;
    • making investments abroad- acquisition and holding shares of both listed and unlisted overseas company or debt instruments;
    • setting up Wholly Owned Subsidiaries and Joint Ventures (with effect from August 05, 2013) outside India for bonafide business subject to other the terms and conditions under FEMA;
    • extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in Companies Act, 2013.

For making above transactions, one needs to maintain bank account for atleast one year with the                concerned bank.

Also the following transactions are covered under the overall LRS limit:

    • Private visits to any country (except Nepal and Bhutan)
    • Gift or donation
    • Going abroad for employment
    • Emigration
    • Maintenance of close relatives abroad
    • Business trip
    • Expenses in connection with medical treatment abroad
    • Studies abroad
    • Any other current account transaction which is not covered under the definition of current account in FEMA 1999.

Maintaining bank account for one year is not required for the above transactions.

  • Remittance limit is per individual and hence family members can come together and consolidate their limits. However, the concerned family members need to be co-owners/co-partners of the overseas bank account/ investment /property.
  • It is mandatory for the remitter to have Permanent Account Number (PAN)
  • Procedurally, you have to fill up Form A2 stating the purpose of remittance and submit it to the AD bank
  • A resident cannot gift to another resident, in foreign currency, for the credit of the latter’s foreign currency account held abroad under LRS.
  • Loan given to NRI/PIO relative and credited to their NRO accounts is covered under this scheme
  • The investor can retain and reinvest the income earned from portfolio investments made under the Scheme.

Prohibited transactions under the Scheme:

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

  • 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.
  • Remittance from India for margins or margin calls to overseas exchanges / overseas counterparty.
  • Remittances for purchase of FCCBs issued by Indian companies in the overseas secondary market.
  • Remittance for trading in foreign exchange abroad.
  • 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.
  • 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.

 

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