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Liberalised Remittance Scheme

1. Background:

Liberalised Remittance Scheme (LRS) was introduced by Reserve Bank of India (RBI) vide A.P. (DIR Series) Circular No. 64 in 2004 as liberalization measure to facilitate resident individuals to remit funds outside India.

2. Eligibility:

The Scheme is available to all resident individuals, including minors.
LRS is not available to corporates, partnership firms, HUF, Trusts, etc.

3. Current Limit

Resident individual (RI) is allowed to freely remit upto USD 2,50,000/- per Financial Year (FY) (April – March) for any permissible current or capital account transaction or a combination of both.
Limit of USD 2,50,000/- is per RI per FY. This facility is available to each family member and thus a family of four members can remit up to USD 10,00,000/- every FY.
Remittance of foreign exchange exceeding USD 2,50,000/- requires RBI’s prior approval. However, in certain exceptional transactions, remittance exceeding USD 2,50,000/- may be allowed by the Authorised Dealer (AD) Bank, without seeking prior RBI approval.

4. Permissible Transactions
RI can avail foreign exchange facility under LRS for following purposes:

A. Current Account Transactions:

i. Private visits to any country (except Nepal and Bhutan)
ii. Gift/Donation including rupee gift to Non Resident Indian (NRI)/Person of Indian Origin (PIO), who is a close relative
iii. Emigration
iv. Overseas Business trip
v. Medical treatment outside India
vi. Pursuing studies outside India
vii. Going outside India for employment
viii. Maintenance of close relatives outside India
ix. Purchasing of objects of art
x. Any other current account transaction which are not prohibited

B. Capital Account Transactions:

Open, maintain and hold foreign currency accounts with a bank outside India
ii. Purchase of property outside India
iii. Investment in shares, securities, mutual funds etc. outside India
iv. Setting up Wholly Owned Subsidiaries (WOS) and Joint Ventures (JV) outside India for bonafide business subject to stipulated terms and conditions
v. Extending loans including loans in Indian Rupees to NRI/PIO who are close relative, subject to stipulated terms and conditions.

5. Exceptions to LRS limit of USD 2,50,000/-:

RI may avail facility in excess of the limit prescribed for purpose of emigration, medical treatment and studies outside, if it is so required by the country of emigration, medical institute offering treatment or the university respectively but subject to certain conditions.

6. Prohibitions/Restrictions under LRS:

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

Remittances for any prohibited activities such as margin trading, lottery etc.
Remittance for purchase of Foreign Currency Convertible Bonds 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 co-operative 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 RBI to the banks.
A RI cannot gift to another RI, in foreign exchange, for the credit of latter's foreign currency account held outside India.
Remittance by family members for capital account transactions such as opening a bank account/investment/purchase of property, can be made only if each remitter in the family is jointly holding such asset.

7. Procedure and compliances:

RI will have to designate a branch of AD Bank through which all the remittances under LRS will be made.
RI should have maintained the bank account with AD Bank for a minimum period of one year prior to remittances for capital account transactions.
RI has to furnish Form A2 to AD Bank (if remitter is a minor, Form must be countersigned by natural guardian).
Permanent Account Number (PAN) is mandatory to make remittance under LRS.

8. General

No restriction on frequency of remittances under LRS. However, total amount remitted during a FY should be within the cumulative limit of USD 2,50,000/-.
Remittance under LRS should be out of remitter’s own funds and not borrowed funds. Further, banks cannot extend any kind of credit facilities to RI to facilitate capital account remittances under LRS.
Indian/foreign citizen (except citizen of Pakistan) who is resident in India on account employment/specific assignment but not permanently resident in India may make remittance upto his net salary after deduction of taxes, contribution to provident fund and other deductions.
RI who has remitted funds under LRS can retain outside India, both the principal amount and income earned on such investments. However, RI who has made overseas direct investment in a WOS/JV will have report such investment to RBI and comply with other stipulated terms and conditions prescribed under the Foreign Exchange Management Act, 1999. - by A M B JAIN & CO.

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