Liberalised Remittance Scheme (LRS) brought in as a relief to all Indian Residents to remit money outside India. As the name suggests, the Liberalised Remittance Scheme (LRS) is all about the remittances that a resident individual is allowed to make. The Liberalised Remittance Scheme (LRS) of the Reserve Bank of India (RBI) allows resident individuals to remit a certain amount of money during a financial year to another country for investment and expenditure.
Resident and non-resident
Indians are traveling and working around the world now more than ever. In an
effort to regulate the movement of Indian rupees out of India, the Reserve Bank
of India (RBI) first introduced the Liberalised Remittance Scheme (LRS)
introduced in the year 2004.
The
RBI’s Liberalised Remittance Scheme (LRS) allows Authorized Dealers, which are
mostly Indian banks, to allow all resident Indian individuals including minors to send up to $250,000 USD outside of India every fiscal year
(April-March) for specific purposes i.e. for any permissible current or capital account
transaction or a
combination of both. This money can be used to
pay expenses related to travelling (private or for business), medical
treatment, studying, gifts and donations, maintenance of close relatives and so
on.
Apart from this, the remitted amount can also be invested in shares, debt
instruments, and be used to buy immovable properties in overseas market.
Individuals can also open, maintain and hold foreign currency accounts with
banks outside India for carrying out transactions permitted under the scheme.
Background
In
view of comfortable position of foreign exchange reserves of India, Liberalised
Remittance Scheme (LRS) was introduced on 04.02.2004, vide RBI 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. Interestingly, this scheme is not part of
any Rules or Regulations.
What
is the Liberalised Remittance Scheme (LRS) of USD 2,50,000 ?
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, resident individuals can avail of foreign
exchange facility for the purposes mentioned in Para 1 of Schedule III of FEM
(CAT) Amendment Rules 2015, dated May 26, 2015, within the limit of USD
2,50,000 only.
The Scheme was introduced on February 4, 2004, with a
limit of USD 25,000. The LRS limit has been revised in stages consistent with
prevailing macro and micro economic conditions.
Liberalised Remittance Scheme
and Sending funds abroad
- What to do
As a resident Indian, you may want to remit
money abroad to children for their education expenses or you may want to remit
money for maintenance of a close relative abroad. You may need foreign
exchange for a private or a business trip or medical treatment abroad. You can
purchase foreign exchange from an Authorized Dealer banks, money changers,
entities such as Thomas Cook and Cox & Kings and select NBFCs. Reserve Bank
has eased the rules for purchase of foreign exchange by residents for
permissible transactions. There is no need of any approval from the Reserve
Bank for purchasing foreign exchange up to a permissible limit. You can use
Liberalised Remittance Scheme (LRS) for purchasing or remitting foreign
currency up to USD 250,000 for permissible transactions.
Non-residents
cannot remit funds abroad under Liberalised Remittance Scheme (LRS).
The Scheme is available to all
resident individuals, including minors.
(i) Scheme is not available to corporates,
partnership firms, Hindu Undivided Family (HUF), Trusts etc.
(ii) LRS is not available to corporates,
partnership firms, HUF, Trusts, etc.
Under the LRS rules, any resident individual
including a minor (countersigned by a guardian) is allowed to remit up to
2,50,000 US dollars in each financial year. At an exchange rate of Rs 74.73 (as
on 27.07.2020) to a dollar, it is Rs 1,86,82,500. There is no
restriction on frequency or number of transactions during a Financial year.
However, total amount of foreign exchange remitted through, all sources in
India under LRS during the current Financial year should be within LRS limit
(currently at USD 250,000/-). Even if one brings the
remitted amount back in the same year, no further remittance will be allowed as
the limit pertains to each financial year. The rules clearly mention that one
can remit foreign exchange (forex) only for any permissible current account
transactions or capital account transactions or a combination of both.
LRS Limit
over the years
The limit has increased over the years but reduced in
between due to forex reserve position. The following table shows
how RBI has raised the investment limits over the past decade
|
S. No. |
LRS limit (in USD) |
Period |
|
|
From |
To |
||
|
(i) |
25,000 |
04.02.2004 |
19.12.2006 |
|
(ii) |
50,000 |
20.12.2006 |
07.05.2007 |
|
(iii) |
1,00,000 |
08.05.2007 |
25.09.2007 |
|
(iv) |
2,00,000 |
26.09.2007 |
13.08.2013 |
|
(v) |
75,000 |
14.08.2013 |
02.06.2014 |
|
(vi) |
1,25,000 |
03.06.2014 |
25.05.2015 |
|
(vii) |
2,50,000 |
26.05.2015 |
Till date |
KEY NOTE
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 Resident Indians 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.
RELEASE OF FOREIGN EXCHANGE EXCEEDING
USD 2,50,000 REQUIRES PRIOR PERMISSION FROM THE RESERVE BANK OF INDIA
On breach of threshold of USD 250,000
for the financial year, one is required to take prior approval from the Reserve
Bank for further purchase of foreign exchange/remittances.
EXCEPTION
There is an exception to the rule in case
of medical treatment, overseas education and emigration. In these cases, one
can still remit more than USD 250,000 without approval from RBI if one can
produce certain supported self-declaration documents. If the Authorized Dealer
is satisfied with the documents, it can let one remit more than USD 250,000
without approval from RBI.
Permissible Current Account transactions under LRS
All earlier facilities for
release of exchange or for remittances for current account transactions
are now subsumed under the overall limit of USD 250,000. Now
no separate limits for gifts, donations, etc.is available.
The following are permissible current account transactions
under LRS:
(i)
PRIVATE VISIT (other than Nepal & Bhutan)
If you are making a private
visit to any country except Nepal and Bhutan. It could be an international
vacation. You can use your credit card on spends and ATM cash withdrawals if
the card allows international transactions.
For private visits abroad, other than to
Nepal and Bhutan, any resident individual can obtain foreign exchange up to an
aggregate amount of USD 2,50,000 from an Authorised Dealer or FFMC, in any one
financial year, irrespective of the number of visits undertaken during the
year.
Further, 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. The tour operator can collect this amount
either in Indian rupees or in foreign currency from the resident traveller.
(ii)
GIFT OR MAKE DONATION ABROAD
If
you wish to Gift or Donation abroad including rupee gift to Non Resident Indian
(NRI) / Person of Indian Origin (PIO), who is a close relative.
· Limits for Gifts and Donations are now
subsumed under LRS limit.
· Gift of funds by one resident to another
resident outside India not allowed.
· Any gift made to a resident outside India
needs to be brought back to India.
(iii) EMIGRATION
If it is for the purpose of
Emigration. A person
wanting to emigrate can draw foreign exchange from AD Category I bank and AD
Category II up to the amount prescribed by the country of emigration or USD 250,000.
Remittance of any amount of foreign exchange outside India in excess of this
limit 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.
(iv) OVERSEAS
BUSINESS TRIP
Visits by
individuals in connection with attending of an international conference,
seminar, specialised training, apprentice training, etc., are treated as
business visits. For business trips to foreign countries, resident individuals
can avail of foreign exchange up to USD 2,50,000 in a Financial year
irrespective of the number of visits undertaken during the year.
However, if an employee is being deputed by an entity
for any of the above and the expenses are borne by the latter, 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.
(v)
MEDICAL TREATMENT ABROAD
If
you need forex for meeting expenses in connection with medical treatment
abroad, or check-up abroad, or for accompanying as attendant to a patient going
abroad for medical treatment/ check-up.
You can remit up to USD 250,000 or its
equivalent without any estimate from the doctor.
If the amount exceeds USD 250,000, you need
to furnish cost estimate from a doctor or hospital in India or abroad. RBI
approval is not required in this case. However, Authorized dealer bank must be
satisfied with the documents presented.
The person who is accompanying the patient
as an attendant is also allowed to remit up to USD 250,000 per financial year.
(vi) PURSUING STUDIES OUTSIDE INDIA FACILITIES AVAILABLE TO STUDENTS FOR PURSUING THEIR STUDIES ABROAD.
If you need forex for meeting cost of
education/studies abroad.
AD
Category I banks and AD Category II, may release foreign exchange up to USD
2,50,000 or its equivalent to resident individuals for studies abroad without
insisting on any estimate from the foreign University. However, AD Category I
bank and AD Category II may allow remittances (without seeking prior approval
of the Reserve Bank of India) exceeding USD 2,50,000 based on the estimate
received from the institution abroad.
Like with medical treatment, you do not need to
provide any estimate for remitting up to USD 250,000 per financial year.
However, Authorized dealer (bank or institution) may allow remittance exceeding
USD 250,000 based on cost estimate from foreign university. RBI approval is not
required in such case.
KEY NOTE
As per FEMA, students are considered NRIs from the day
one (of moving abroad for studies). Hence, they can make use of all the remittance
facilities available to NRI. They can remit up to USD 1 million from their NRO accounts per
financial year.
(vii) GOING
OUTSIDE INDIA FOR EMPLOYMENT
A person going
abroad for employment can draw foreign exchange up to USD 2,50,000 per FY from
any Authorised Dealer in India.
(viii) MAINTENANCE OF CLOSE RELATIVES ABROAD
A resident individual can remit up-to USD 2,50,000 per Financial year towards
maintenance of close relatives abroad. [‘relative’ as defined in
Section 2(77) of the Companies Act, 2013] .
TEXT OF SECTION 2(77) OF THE COMPANIES
ACT, 2013
2
(77) “relative”, with reference to any person, means any one who is related to
another, if—
(i)
they are members of a Hindu Undivided Family;
(ii)
they are husband and wife; or
(iii) one person is related to the other
in such manner as may be prescribed;
|
S. No. |
Relative per Companies Act,
2013 if |
S. No. |
Not included in the list of relatives |
|
1 |
Member of HUF |
1 |
Father’s Father |
|
2 |
Husband |
2 |
Father’s Mother |
|
3 |
Wife |
3 |
Mother’s Mother |
|
4 |
Father
(including Step Father) |
4 |
Mother’s Father |
|
5 |
Mother
(Including Step Mother) |
5 |
Son’s Son |
|
6 |
Son (including
Step Son) |
6 |
Son’s Son’s Wife |
|
7 |
Son’s Wife |
7 |
Son’s Daughter |
|
8 |
Daughter |
8 |
Sons’ Daughter’s Husband |
|
9 |
Daughter’s
Husband |
9 |
Daughter’s Son |
|
10 |
Brother
(including Step Brother) |
10 |
Daughter’s Son’s |
|
11 |
Sister
(including Step Sister) |
11 |
Daughter’s Daughter |
|
|
12 |
Daughter’s Daughter’s Husband |
|
|
13 |
Brother’s Wife |
||
|
14 |
Sister’s Husband |
||
All
of the above transactions will fall under current account transactions and the
Authorised Dealer (the bank) in addition may undertake the remittance without
RBI’s permission if the transactions do not fall in the prohibited list.
However, the person remitting the funds has to bear the responsibility to
comply with the FEMA rules/regulations. One has to also comply with the ‘Know
Your Customer’ guidelines and the Anti-Money Laundering Rules while making any
of the current account transactions.
Permissible
Capital account transactions under LRS
If you wish to invest abroad in shares, property
etc., the LRS rules will define them as capital account transactions. Only
certain capital account transactions are allowed under LRS rules. The
following are the permissible Capital account transactions under LRS:
(i)
OPENING OF FOREIGN CURRENCY ACCOUNT ABROAD WITH A BANK
OUTSIDE INDIA
If you wish to open
a bank account abroad i.e. a Foreign Currency Account
(ii)
PURCHASE OF PROPERTY ABROAD
Resident individual can send remittances under
the Liberalised Remittance Scheme for purchasing Immovable Property
outside India. Such Immovable Properties can be:
(i)
Leased
(ii)
Sold
(iii)
Funds from lease
and sale can be retained outside India
(iv)
Funds retained
can be reinvested
Further multiple LRS remittances can be clubbed for
purchase of high value Immovable Property. One individual can remit USD
250,000 in foreign bank account over multiple years until sufficient funds
are collected.
INHERITANCE
A Resident can acquire property purchased through
LRS by inheritance or gift. The Resident individual can retain such
Immovable Properties abroad from 21.01.2016. However, on sale of such property,
funds will have to be brought back to India.
(iii)
INVESTMENTS IN SHARES, SECURITIES, MUTUAL FUNDS, etc.
ABROAD
For making
investments overseas which includes investing in shares, mutual funds, debt
instruments, among others.
·
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;
KEY NOTE
Shares allowed to be retained abroad. The intention is
to cover portfolio shares.
(iv)
SETTING UP WHOLLY OWNED
SUBSIDIARIES AND JOINT VENTURES OUTSIDE INDIA FOR BUSINESS OPERATIONS
Setting up wholly owned
subsidiaries and Joint Venture abroad for bonafide business subject to
stipulated terms and conditions
(v)
EXTENDING LOANS INCLUDING LOANS IN INDIAN RUPEES TO
NRIS WHO ARE RELATIVES AS DEFINED IN COMPANIES ACT, 2013
Extending
loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are
relatives as defined in Companies Act, 2013.
KEY NOTE
Banks are not permitted to
offer any kind of credit facilities to facilitate Capital Account remittances
under LRS.
Prohibited
Transactions under the Scheme
The
remittance facility under the LR Scheme is not available for any of the
following transactions:
(i)
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.
(ii)
Remittance from India for margins or margin calls to
overseas exchanges / overseas counterparty.
(iii)
Remittances for purchase of FCCBs issued by Indian
companies in the overseas secondary market.
(iv)
REMITTANCE FOR TRADING IN FOREIGN EXCHANGE ABROAD
Remittance for trading in
foreign exchange abroad. (restricts buying and
selling of foreign exchange abroad)
(v)
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.
(vi)
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.
Repatriation of funds
If someone has invested
across shares and mutual fund schemes abroad, the LRS rules allow the investor
(unless it is overseas direct investment) to retain and reinvest the income
earned in that country. It is not necessary for the investor to repatriate the
accrued interest or dividends on the deposits and investments made abroad.
So, the dividend earned on your investments in
stocks or interest earned from the investments held as bonds can be retained
abroad. Such earned income can then be used to re-invest or to meet any
expenses abroad. Even the profits realised from investments in ETF’s and real
estate can be redeployed abroad without bringing it back to the domestic bank
account.
Remittances
under the LRS facility can be consolidated in respect of close family members
Remittances
under the facility can be consolidated in respect of close family members
subject to the individual family members complying with the terms and
conditions of the Scheme. However, clubbing is not permitted by other family
members for capital account transactions such as opening a bank
account/investment/purchase of property, if they are not the
co-owners/co-partners of the investment/property/overseas bank account.
Further, a resident cannot gift to another resident, in foreign currency, for
the credit of the latter’s foreign currency account held abroad under LRS.
No restriction on frequency of remittance under LR Scheme
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.
Once a remittance is made for
an amount up to USD 2,50,000 during the financial year, a resident individual
would not be eligible to make any further remittances under this scheme, even
if the proceeds of the investments have been brought back into the country.
Procedure
and compliances
(1)
The applicants (Resident individual) will have to designate a branch of
an AD Bank through which all the remittances under the Scheme will be made.
(2) The applicants should have maintained the
bank account with AD Bank for a minimum period of one year prior to remittances
for capital account transactions.
(3) FURNISH FORM A2 TO THE AD BANK
The resident individual seeking to make the remittance
should furnish Form A2 to AD Bank (if remitter is a minor, Form must be
countersigned by natural guardian) for purchase of foreign exchange under
LRS.
PROCEDURE
(i) Furnish Form A2 to the bank
a.
basic details
(applicant name, PAN, name of AD Branch and receiver details),
b.
purpose and its code
for which the individual is remitting the amount,
c.
declaration by
the applicant and certificate by AD that the amount remitted throughout the
financial year does not exceed the limit and is not used for the prohibited
purposes.
(ii) Self-declaration process for remittances; AD
bank verification.
(iii) Remittances to be undertaken through designated authorised dealer
bank and branch. NOC required
if remittances are from different banks.
(iv)
Source of funds
through prior bank statements/IT returns can be verified by AD banks prior to
LRS remittances.
(v)
Foreign bank
account details – sought by AD banks now. Added scrutiny for remittances into
overseas personal bank accounts.
(vi)
Minimum banking
relationship of 12 months for remittances towards capital account transactions
under LRS.
KEY NOTE
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.
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.
(4) MANDATORY FOR RESIDENT
INDIVIDUALS TO HAVE PERMANENT ACCOUNT NUMBER (PAN) FOR SENDING OUTWARD
REMITTANCES UNDER THE LIBERALISED REMITTANCE SCHEME
It is mandatory for the
resident individual to provide his/her Permanent Account Number (PAN) for all
transactions under LRS made through Authorized Persons.
Remittances
can be made any freely
convertible foreign currency
The
remittances can be made in any freely convertible foreign currency that your
authorised dealer offers. It
is not necessary that remittances can be made only in US Dollars.
Authorised
Dealers (AD)
(i)
With a view to
maintaining uniform practices, Authorized Dealers may consider requirements or
documents to be obtained by their branches to ensure compliance with provisions
of sub-section (5) of section 10 of the FEMA,
1999.
(ii)
Authorised
Dealers are also required to keep on record any information / documentation, on
the basis of which the transaction was undertaken for verification by the
Reserve Bank. In case the applicant refuses to comply with any such requirement
or makes unsatisfactory compliance therewith, the Authorised Dealer shall
refuse, in writing, to undertake the transaction and shall, if he has reasons
to believe that any contravention / evasion is contemplated by the person,
report the matter to the Reserve Bank.
(iii)
Reserve Bank of
India will not issue any instructions under the FEMA, regarding the procedure
to be followed in respect of deduction of tax at source while allowing
remittances to the non-residents. It shall be mandatory on the part of
Authorised Dealers to comply with the requirement of the tax laws, as
applicable.
(iv)
While allowing
the facility to resident individuals, Authorised Dealers are required to ensure
that “Know Your Customer” guidelines have been implemented in respect of bank
accounts. They should also comply with the Anti-Money Laundering Rules in force
while allowing the facility.
(v)
The applicants
should have maintained the bank account with the bank for a minimum period of
one year prior to the remittances for capital account transactions. If the
applicant seeking to make the remittances is a new customer of the bank,
Authorised Dealers should carry out due diligence on the opening, operation and
maintenance of the account. Further, the Authorised Dealers 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.
(vi)
The Authorised
Dealer should ensure that the payment is received out of funds belonging to the
person seeking to make the remittances, by a cheque drawn on the applicant’s
bank account or by debit to his account or by Demand Draft / Pay Order.
Authorised Dealer may also accept the payment through credit /debit/prepaid
card of the card holder.
(vii)
The Authorised
Dealer should certify that the remittance is not being made directly or
indirectly by /or to ineligible entities and that the remittances are made in
accordance with the instructions contained herein.
(viii)
AD bank should
not extend any kind of credit facilities to resident individuals to facilitate
remittances for capital account transactions under the Scheme.
(ix)
Authorised Dealer
may keep a record of the countries identified by FATF as non-co-operative
countries and territories and accordingly update the list from time to time for
necessary action by their branches handling the transactions under the
Liberalised Remittance Scheme. For this purpose, they may access the website
www.fatf-gafi.org to obtain the latest list of non-co-operative countries
notified by FATF.
KEY NOTE
(i) Bankers can not open foreign currency accounts in
India for residents under LRS.
(ii) An Offshore Banking Unit (OBU) in India can not be
treated on par with a branch of the bank outside India for the purpose of
opening of foreign currency accounts by residents under the Scheme.
(iii) Prior approval is not required to open, maintain and
hold foreign currency account with a bank outside India for making remittances
under the LRS.
Foreign Assets Disclosure - Under Income
Tax Return Forms
Though remittance of fund under LRS is
under automatic route and investment can be made overseas. One shall keep in
mind the requirement of disclosure of foreign assets under income tax
return. The individual is also
required to disclose the foreign assets in the schedule FA of ITR 2. Schedule Foreign Assets (FA) covers:
(i) DEPOSITORY ACCOUNTS
Foreign
depository accounts and foreign custodial account, mentioning the details of
the country, details financial institution, bank account, account opening date,
peak balance, gross interest paid or credited during the period;
(ii) Custodial Accounts
(iii) FOREIGN EQUITY & DEBT INTEREST IN ANY
ENTITY
Details of foreign equity held or foreign debt held
(including any beneficial interest), mentioning the details of country, entity,
details of investment or gross proceeds from sale or redemption during the
period;
(iv) Foreign Cash Value Insurance or Annuity
Contract
(v) Financial Interest in any Entity
(vi)
IMMOVABLE PROPERTY
Any acquisition of assets abroad would
have to be disclosed in the tax returns of the individual.
KEY NOTE
Remittance abroad for purchase of property in India is not permissible
under LRS
(vii) Any other Capital Asset
(viii) Accounts with Signing Authority
(ix)
TRUSTS
Details of trust created in which the individual is a beneficiary or
settlor.
(x)
Any other “income” derived from source outside India not included above
and income under the head business or
profession
Remittances
under LRS over the years
|
S. No. |
Financial year |
Amount in USD Millians |
|
1 |
2004-05 |
10 |
|
2 |
2005-06 |
25 |
|
3 |
2006-07 |
73 |
|
4 |
2007-08 |
441 |
|
5 |
2008-09 |
808 |
|
6 |
2009-10 |
983 |
|
7 |
2010-11 |
1164 |
|
8 |
2011-12 |
1002 |
|
9 |
2012-13 |
1206 |
|
10 |
2013-14 |
1094 |
|
11 |
2014-15 |
1326 |
|
12 |
2015-16 |
4643 |
|
13 |
2016-17 |
8171 |
|
14 |
2017-18 |
11334 |
|
15 |
2018-19 |
13788 |
