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.
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, with a limit of USD
25,000. The LRS limit has been revised in stages consistent with prevailing
macro and micro economic conditions.
The
legal framework for administration of foreign exchange transactions in India is
provided by the Foreign Exchange Management Act, 1999, (FEMA), which came into
force with effect from June 1, 2000. Under FEMA, all transactions involving
foreign exchange have been classified either as capital or current account
transactions. All transactions undertaken by a resident that do not alter his /
her assets or liabilities, including contingent liabilities, outside India are
current account transactions.
In
terms of Section 5 of the FEMA, persons resident in India 1 are free to buy or
sell foreign exchange for any current account transaction except for those
transactions for which drawal of foreign exchange has been prohibited by
Central Government, such as remittance out of lottery winnings; remittance of
income from racing/riding, etc., or any other hobby; remittance for purchase of
lottery tickets, banned / proscribed magazines, football pools, sweepstakes,
etc.; remittance of dividend by any company to which the requirement of
dividend balancing is applicable; payment of commission on exports under Rupee
State Credit Route except commission up to 10% of invoice value of exports of
tea and tobacco; payment of commission on exports made towards equity
investment in Joint Ventures / Wholly Owned Subsidiaries abroad of Indian
companies; remittance of interest income on funds held in Non-Resident Special
Rupee (Account) Scheme and payment related to “call back services” of
telephones.
Foreign
Exchange Management (Current Account Transactions) Rules, 2000 - Notification
[GSR No. 381(E)] dated May 3, 2000 and the revised Schedule III to the Rules as
given in the Notification G.S.R. 426(E) dated May 26, 2015 is available in the
Official Gazette as well as, as an Annex to our Master Direction on ‘Other
Remittance Facilities’ available on our website www.rbi.org.in.
Liberalised
Remittance Scheme (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
|
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.
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.
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.
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.
Who can avail the benefits under Liberalised
Remittance Scheme (LRS)?
In order to avail the benefit of the LRS, the individual must be an
Indian resident as defined under the Foreign Exchange Management Act (FEMA).
He/she must also have a valid PAN card, a bank account in India, and a
valid passport. Further, the amount to be remitted should not exceed the
prescribed limit of USD 250,000 per financial year (April – March) for any
permissible current or capital account transaction or a combination of both.
In
case of remitter being a minor, the LRS declaration form must be countersigned
by the minor’s natural guardian. The Scheme is not available to corporates,
partnership firms, HUF, Trusts etc.
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.
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.
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.
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.
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.
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.
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.
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
Prohibited
items under the Liberalised Remittance Scheme (LRS)
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.
(vii) Gifting by a resident to
another resident, in foreign currency, for the credit of the latter’s foreign
currency account held abroad under LRS.
“Current account transaction” means
As per FEMA Act, 1999, a “current
account transaction” means a transaction other than a capital account
transaction and without prejudice to the generality of the foregoing, such
transaction includes, (i) payments due in connection with foreign trade, other
current business, services, and short- term banking and credit facilities in
the ordinary course of business, (ii) payments due as interest on loans and as
net income from investments, (iii) remittances for living expenses of parents,
spouse and children residing abroad, and (iv) expenses in connection with
foreign travel, education and medical care of parents, spouse and children.
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.
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;
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.
NOTE
Banks are not permitted to
offer any kind of credit facilities to facilitate Capital Account remittances
under LRS.
TCS
on foreign remittance through Liberalised Remittance Scheme (LRS) [Section 206C(1G))]
For benefits of Individuals
and HUFs the RBI with consultation of Central Government brought Liberalized
remittance Scheme. Under LRS Scheme, an Individual person who is resident in
India as per FEMA is permitted to remit outside India fund up to US$ 2,50,000
per financial year (April to March) without any approval of RBI for any
permitted current account or capital account transactions or both such as opening
foreign currency account abroad, purchase of property or making investments
abroad, private visit, gift/donation, business trip, medical treatment, studies
abroad, going abroad on employment, etc. This scheme is available only to
Individuals (including minors) and not to corporates, Partnership firms, LLP,
HUF, etc. The government of India decided to introduce this TCS to widen the
tax net and get tax evaders to start paying tax and not to further burden the
existing taxpayers.
Therefore, Finance Act, 2020
inserted sub-section (1G) in Section 206C of the Income-tax Act, 1961 which is
effective from 1st October, 2020. It has introduced the provision of TCS on the
remittances made under Liberalized Remittance Scheme (“LRS”) of Reserve Bank of
India (“RBI”) and remittance made towards Overseas Tour Program Package.
The relevant extract of the
Section 206C(1G) is provided as under:
[1][(1G)
Every person,-
(a)
being an authorised dealer, who receives an amount, for remittance [2][***] from
a buyer, being a person remitting such amount [3][***]
under the Liberalised Remittance Scheme of the Reserve Bank of India;
(b)
being a seller of an overseas tour program package, who receives any amount
from a buyer, being the person who purchases such package,
shall, at the time of debiting the amount
payable by the buyer or at the time of receipt of such amount from the said
buyer, by any mode, whichever is earlier, collect from the buyer, a sum equal
to [4][twenty]
per cent of such amount as income-tax:
PROVIDED that the authorised dealer shall not collect
the sum, if the amount or aggregate of the amounts being remitted by a buyer is
less than seven lakh rupees in a financial year [5][and
is for the purposes of education or medical treatment]:
PROVIDED FURTHER that the sum to be collected by an
authorised dealer from the buyer shall be equal to five per cent of the amount
or aggregate of the amounts in excess of seven lakh rupees remitted by the
buyer in a financial year, where the amount being remitted [6][is
for the purposes of education or medical treatment]:
PROVIDED ALSO that the authorised dealer shall
collect a sum equal to one half per cent of the amount or aggregate of the
amounts in excess of seven lakh rupees remitted by the buyer in a financial
year, if the amount being remitted out is a loan obtained from any financial
institution as defined in section 80E, for the purpose of pursuing any
education:
PROVIDED ALSO that the authorised dealer shall
not collect the sum on an amount in respect of which the sum has been collected
by the seller:
PROVIDED ALSO that the provisions of this
sub-section shall not apply, if the buyer is,-
(i) liable to deduct tax at source under any
other provision of this Act and has deducted such amount;
(ii) the Central Government, a State Government,
an embassy, a High Commission, a legation, a commission, a consulate, the trade
representation of a foreign State, a local authority as defined in the
Explanation to clause (20) of section 10 or any other person as the Central
Government may, by notification in the Official Gazette, specify for this
purpose, subject to such conditions as may be specified therein.
Explanation.- For the purposes of this
sub-section,—
(i) “authorised dealer” means a person
authorised by the Reserve Bank of India under sub-section (1) of section 10 of
the Foreign Exchange Management Act, 1999 (42 of 1999) to deal in foreign
exchange or foreign security;
(ii) “overseas tour programme package” means any
tour package which offers visit to a country or countries or territory or
territories outside India and includes expenses for travel or hotel stay or
boarding or lodging or any other expenditure of similar nature or in relation
thereto. The said TCS Section 206C(1G)(a) will be applicable only on the remittances
made under LRS Scheme of RBI. Remittances other than LRS such as remittances by
non-individuals, remittances for payment of import of goods or services, etc.
are not subject to TCS provisions.
KEY NOTE
1. Inserted by the Finance Act, 2020, with
effect from 01.10.2020.
2. The words “out of India” omitted by the Finance
Act, 2023, with effect from 01.07.2023.
3. The words “out of India” omitted by the Finance
Act, 2023, with effect from 01.07.2023.
4. The words “five” substituted
by the Finance Act, 2023, with effect from 01.07.2023.
5. The words “and is
for a purpose other than purchase of overseas tour program package” substituted
by the Finance Act, 2023, with effect from 01.07.2023.
6. The words “and is for a purpose other than
purchase of overseas tour program package” substituted by the Finance Act,
2023, with effect from 01.07.2023.
Authorised
Dealer is liable to collect TCS in case of LRS remittances
The
authorized dealer who is authorized by RBI under Foreign Exchange Management
Act, 1999 (“FEMA”) to deal in foreign currency or foreign security, would be
liable to collect such TCS from the buyer who is remitting such amount of
foreign exchange outside India under the LRS scheme.
Rates
of Tax Collected at Source : With effect from 01.07.2023
|
Cases
|
Type of Remittance
|
Rate of TCS
[upto 30.06.2023]
|
Rate of TCS [with effect from 01.07.2023]
|
|
|
|
Threshold
|
Rate
|
Threshold
|
Rate
|
|
1
|
LRS - Remittance is from Education loan obtained from any financial
institution as defined under section 80E
|
Rs. 7,00,000
|
0.5% of the amount or the
aggregate of the amounts in excess of Rs. 7,00,000
|
Rs. 7,00,000
|
0.5%
of the amount or the aggregate of the amounts in excess of Rs.
7,00,000
|
|
2
|
LRS - Remittance is from Education loan obtained other than from Sr.
No. 1 (mentioned above)
|
Rs. 7,00,000
|
5% of the amount or the aggregate of the amounts in excess of Rs.
7,00,000
|
Rs. 7,00,000
|
5% of the amount or the aggregate of the amounts in excess of Rs.
7,00,000
|
|
3
|
LRS - Remittance for medical treatment
|
Rs. 7,00,000
|
5% of the amount or the aggregate
of the amounts in excess of Rs. 7,00,000
|
Rs. 7,00,000
|
5% of the amount or the aggregate
of the amounts in excess of Rs. 7,00,000
|
|
4
|
LRS - Any other remittance
|
Rs. 7,00,000
|
5% of the amount or the aggregate of the amounts in excess of Rs.
7,00,000
|
NIL
|
20% without any threshold limit
|
|
5
|
Sale of overseas tour program package
|
NIL
|
5% without any threshold limit
|
NIL
|
20% without any threshold limit
|
NOTE
Tax Collected at Source only applies to foreign
outward remittances. It does not apply to foreign inward remittances (i.e. money
that is sent to India).
Point
of liability to collect TCS
From 01.10.2020, any amount
or aggregate of the amounts being remitted outside India by a person resident
in India under the LRS Scheme of RBI in excess of Rs. 7,00,000 in a Financial
year will attract TCS @5%. It is pertinent to note that the Tax shall be
collected from 01.10.2020 but threshold limit of 7,00,000 shall be calculated
from 01.04.2020.
TCS amount is not an additional tax
TCS amount is not an additional tax. The credit of TCS is available
against the actual income tax liability of an individual and if the amount of
TCS is more than the eventual tax liability, then such an individual would be
entitled to a refund of the excess amount along with interest.
Spending on International Credit Card on foreign trip
expenses brought under FEMA Rules
The
Central Government notified the amendment of the Foreign Exchange Management
(Current Account Transactions) Rules, 2000 on 16.05.2023 and has the same
enforcement date.
The
government has amended the rules within the powers conferred by section 5 and
sub-section (1), clause (a) of sub-section (2) of section 46 of the Foreign
Exchange Management Act, 1999.
The
rules shall be named as Foreign Exchange Management (Current Account
Transactions) (Amendment) Rules, 2023. As per the current amendment, the
Central Government has omitted the Rule 7 of Foreign Exchange Management
(Current Account Transactions) Rules, 2000.
Rule 7 of FEMA (Current
Account Transactions) Rules, 2000:
“Use of International
Credit Card while outside India – Nothing contained in rule 5 shall apply to
the use of International Credit Card for making payment by a person towards
meeting expenses while such person is on a visit outside India.”
Rule 5 of FEMA (Current
Account Transactions) Rules, 2000 :
“Prior approval of
Reserve Bank – Every drawal of foreign exchange for transactions included in
Schedule III shall be governed as provided therein : Provided that this rule
shall not apply where the payment is made out of funds held in Resident Foreign
Currency (RFC) Account of the remitter”. According to what can be deduced from
reading Rules 5 and 7, it is not necessary to seek prior permission from the
Reserve Bank of India before using an international card to pay for
expenditures while visiting another country.
The
Indian government, however, has removed this amendment’s inclusion of such a
rule. In order to use the International Cards while travelling outside of
India, people must first obtain the authorization of the Reserve Bank of India.
By
Notification No. G.S.R.33(E) dated 15.01.2003, the Foreign Exchange Management
(Current Account Transactions) (Amendment) Rules, 2003 included Rule 7.
Presently, the government has removed the same law through the current
notification G.S.R. 369(E) dated 16.05.2023 after 20 years and it is no longer
in effect. Additionally, Indians who are considering travelling overseas to
make a visit must obtain permission in advance from the Reserve Bank of India
in order to use their International Cards to pay for their expenses.
Central Government
notified FEMA (Current Account Transactions) (Amendment) Rules, 2023 [Notification No.
G.S.R. 369(E), dated 16.05.2023]
G.S.R.
369(E).- In exercise of the powers conferred by section 5 and sub-section (1),
clause (a) of sub-section (2) of section 46 of the Foreign Exchange Management
Act, 1999 (42 of 1999), and in consultation with the Reserve Bank of India, the
Central Government having considered it necessary in the public interest, makes
the following amendment to the Foreign Exchange Management (Current Account
Transactions) Rules, 2000, namely:-
1. (1) These rules may
be called the Foreign Exchange Management (Current Account Transactions)
(Amendment) Rules, 2023.
(2) They shall come into
force on the date of their publication in the Official Gazette.
2. In the Foreign
Exchange Management (Current Account Transactions) Rules, 2000, rule 7 shall be
omitted.
No TCS on payments by international Debit or Credit
cards upto Rs 7,00,000 per financial year
The Ministry of Finance has
issued a clarification on applicability of Tax Collection at Source to small
Debit/Credit Transactions under LRS.
As per the Press release dated
19.05.2023, concerns have been raised about the applicability of Tax Collection
at Source (TCS) to small transactions under the Liberalized Remittance Scheme
(LRS) from July 1, 2023.
To avoid any procedural
ambiguity, it has been decided that any payments by an individual using their
international Debit or Credit cards upto Rs 7,00,000 per financial year will be
excluded from the LRS limits and hence, will not attract any TCS.
Purposes
under FEM (CAT) Amendment Rules, 2015, under which a resident individual can
avail of foreign exchange facility
Individuals
can avail of foreign exchange facility for the following purposes within the
LRS limit of USD 2,50,000 on financial year basis:
(i)
Private
visits to any country (except Nepal and Bhutan)
(ii)
Gift
or donation
(iii)
Going
abroad for employment
(iv)
Emigration
(v)
Maintenance
of close relatives abroad
(vi)
Travel
for business, or attending a conference or specialised training or for meeting
expenses for meeting medical expenses, or check-up abroad, or for accompanying
as attendant to a patient going abroad for medical treatment/ check-up
(vii)
Expenses
in connection with medical treatment abroad
(viii)
Studies
abroad
(ix)
Any
other current account transaction which is not covered under the definition of
current account in FEMA 1999.
The
AD bank may undertake the remittance transaction without RBI’s permission for
all residual current account transactions which are not prohibited/ restricted
transactions under Schedule I, II or III of FEM (CAT) Rules, 2000, as amended
or are defined in FEMA 1999. It is for the AD to satisfy themselves about the
genuineness of the transaction, as hitherto.
Under
LRS are resident individuals required to repatriate the income earned on
investments abroad, over and above the principal amount?
Ans.
The investor who has remitted funds under LRS can retain and reinvest the
income earned from his investments made under the Scheme. However, the
received/realised/unspent/unused foreign exchange, unless reinvested, shall be
repatriated and surrendered to an authorised person within a period of 180 days
from the date of such receipt/ realisation/ purchase/ acquisition or date of
return to India, as the case may be.
Further,
any additional repatriation requirement with respect to investments made under
Overseas Investments Rules and Regulations 2022 shall also be adhered to.
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.
It is
mandatory for resident individuals to have Permanent Account Number (PAN) for
sending outward remittances under the 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.
No restrictions
on the frequency of the remittance?
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.
Resident
individuals (but not permanently resident in India) can remit up to net salary
after deduction of taxes. However, if he has exhausted the limit of USD
2,50,000 as net salary remittance and desires to remit any other income under
LRS is it permissible as the limit will be over and above USD 2,50,000?
Resident
individuals (but not permanently resident in India) who have remitted their
entire earnings and salary and wish to further remit ‘other income’ may
approach RBI with documents through their AD bank for consideration.
Para
5.4 of AP DIR Circular 106 dated June 01, 2015 states that the applicants
should have maintained the bank account with the bank for a minimum period of
one year prior to the remittance for capital account transactions. Whether this
restriction applies to current account transactions?
No.
The rationale is that remittance facility for current account transactions
under Schedule III of FEM (CAT) Amendment Rules, 2015, such as private and
business visits, up to the LRS limit of USD 250, 000 can also be provided by
FFMCs. As FFMCs cannot maintain accounts of remitters, the proviso (as
mentioned in para 5.4 of the circular ibid) has been confined to capital
account transactions. However, FFMCs, are required to ensure that the
"Know Your Customer" guidelines and the Anti-Money Laundering Rules
in force have been complied with while allowing the current account
transactions.
No restrictions
towards remittances to Mauritius and Pakistan for permissible current account
transactions?
There
are no restrictions towards remittances for current account transactions to
Mauritius and Pakistan.
Remittances
directly or indirectly to countries identified by the Financial Action Task
Force (FATF) as “non- cooperative countries and territories”, from time to
time; and 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 are not permissible.
Requirements
to be complied with by the remitter
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
one year prior to the remittance.
For
remittances pertaining to permissible capital 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. 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.
No credit
facilities (fund or non-fund based) in Indian Rupees or foreign currency can be
extended by AD banks to resident individuals
LRS
does not envisage extension of fund and non-fund based facilities by the AD
banks to their resident individual customers to facilitate remittances for
capital account transactions under LRS.
However,
AD banks may extend fund and non-fund based facilities to resident individuals
to facilitate current account remittances under the Scheme.
Clarification
on remittance by sole proprietor under LRS
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.
Facilities
under Schedule III of FEM (CAT) Amendment Rules, 2015 available for persons
other than individual?
Ans.
The following facilities are available to persons other than individuals:
(a) Donations
up-to one per cent of their foreign exchange earnings during the previous three
financial years or USD 5,000,000, whichever is less, for- (a) creation of
Chairs in reputed educational institutes, (b) contribution to funds (not being
an investment fund) promoted by educational institutes; and (c) contribution to
a technical institution or body or association in the field of activity of the
donor Company.
(b) Commission,
per transaction, to agents abroad for sale of residential flats or commercial
plots in India up to USD 25,000 or five percent of the inward remittance
whichever is less.
(c) Remittances
up to USD 10,000,000 per project for any consultancy services in respect of
infrastructure projects and USD 1,000,000 per project, for other consultancy
services procured from outside India.
(d) Remittances
up to five per cent of investment brought into India or USD 100,000 whichever
is less, by an entity in India by way of reimbursement of pre-incorporation
expenses.
(e) Remittances
up to USD 250,000 per financial year for purposes stipulated under Para 1 of
Schedule III to FEM (CAT) Amendment Rules, 2015. However, all residual current
account transactions undertaken by such entities are otherwise permissible
without any specified limit and are to be disposed off at the level of AD, as
hitherto. It is for the AD to satisfy themselves about the genuineness of the
transaction.
Anything
in excess of above limits requires prior approval of the Reserve Bank of India.
While Converting INR to Any
Other Currency for Investment in Listed Equities/Any Other Objective
According to the amendments
made by the Finance Act, 2023, with effect from 01.07.2023, the bank will be
required to collect Tax Collected at Source (TCS) at a 20% rate on the
aggregate amount of remittance in a Financial Year.
FOR EXAMPLE :
Suppose an individual wants
to remit and convert Rs. 30,00,000 to US Dollars. The bank would be subject to
deduct a Tax Collected at Source of 20% on Rs. 30,00,000. Hence, here, the TCS
would be Rs 6,00,000.
Converting INR to Any Other Currency for an Overseas
Tour Package
The
bank will be needed to collect Tax Collected at Source at 20% on the aggregate
amount of remittance.
FOR
EXAMPLE :
Suppose
that someone wants to convert Rs 40,00,000 to US Dollars for spending on
overseas travel, tours, etc. Here, 20% TCS on Rs. 40,00,000 will be deducted by
the bank. As per this example, the TCS would be Rs 8,00,000 here.
For overseas education and medical treatment
For overseas education and medical treatment, a
Tax Collected at Source (TCS) of 5% will be levied for an aggregate amount
above Rs 7,00,000 being remitted.
FEW EXAMPLES:
Example : 1
Mr
A has a taxable income of Rs. 10,00,000, on which income tax payable was Rs.
25,000. Mr A also invested in US stocks of Rs. 100,000, on which TCS of Rs.
20,000 was collected. Other than such TCS, a TDS of Rs. 25,000 was deducted.
In the above scenario, the tax payable is Rs. 25,000, and the total TDS &
TCS paid is Rs. 45,000. Thus, once Mr A files his ITR, then an Income tax
refund of INR 20,000 will be received.
Example: 2
Mr
B has a taxable income of Rs. 5,00,000, on which income tax payable was NIL. Mr
B also invested in US stocks of Rs. 100,000, on which TCS of Rs. 20,000 was
collected.
In the above scenario, the tax payable is NIL, and the total TCS paid is Rs.
20,000. Thus, once Mr B files his ITR, an Income tax refund of Rs. 20,000 will
be received.
Example
: 3
Mr
C has a taxable income of Rs. 5,00,000, on which income tax payable was NIL. Mr
B receives interest/funds from other sources of income on which tax payable was
Rs. 8,000. Mr B also invested in US stocks of Rs. 100,000, on which TCS of Rs.
20,000 was collected.
In the above scenario, the tax payable is Rs. 8000, and the total TCS paid is Rs.
20,000. Thus, once Mr B files his ITR, then an Income tax refund of Rs. 12,000
will be received.
FAQs for TCS on payments
under Liberalised Remittance Scheme
The Ministry of Finance has clarified that TCS will
not be applicable on all remittances but only on those remittances which are
covered under Liberalised Remittance Scheme (LRS); It also clarifies that the
increase in TCS rate from 5% to 20% without any threshold (w.e.f. 01.07.2023 on
sale of overseas tour packages and remittance other than the remittance for
education and medical treatment) is due to the instances of “disproportionately
high” LRS payments as compared to the disclosed incomes and that there is no
change w.r.t. education and medical treatment as compared to the position prior
to Finance Act, 2023; The FAQs make it clear that increase in TCS will have
impact on investment in assets such as real estate, bonds, stocks outside India
by HNI and tour and travel packages or gifts to non-residents; Regarding impact
on travel and incidental expenses pertaining to medical treatment and
education, the rate applicable to medical treatment and education shall apply
but a detailed clarification will be issued separately; On 16.05.2023 the
Finance Ministry had issued a notification to remove exemption granted to
international credit card in the context of LRS; The notification was issued as
expenditure under the LRS limit of USD 2,50,000 went unaccounted, while the
date revealed that international credit cards were being issued exceeding the
LRS limit, and the differential treatment between debit and credit cards was
also to be done away for bringing uniformity and equity in treating the two
modes of forex withdrawal; The Finance Ministry also clarified that LRS does
not cover business visits of an employee ‘deputed’ by an entity where the
expenditure is borne by the entity, thus, in such cases transaction may be
permitted by the authorised dealer without any limit subject to verification of
the bona fide of the transaction.
TCS on foreign remittance through Liberalised
Remittance Scheme – FAQs
Part A. Some clarifications on Tax Collection at
Source
1. Why is TCS required to be collected?
Ans. Section 206C of the Income-Tax Act 1961
provides for TCS in the business of trading in alcohol, liquor, forest produce,
scrap etc. Sub-section (1G) of the aforesaid section provides for TCS on
foreign remittance through the Liberalised Remittance Scheme and on the sale of
overseas tour packages.
2. Is TCS applicable to all remittances made
abroad?
Ans. No. Only such remittances which are covered
under LRS are liable to TCS.
These have been detailed in the answer to Q (5) in Part B of the
clarifications.
3. What is the reason behind the increase in rates
of TCS?
Ans. The reasons for the amendment are:
- The payment of TCS is not a final tax
- If the TCS payee is a taxpayer, he can claim credit for the TCS as
his tax payment against regular income and adjust it against the advance
tax etc., payments accordingly.
- If the TCS is of a person not being a taxpayer, then the 20% rate
on such presumed income is not high. The tax rate slab of 20% starts in
the new regime for incomes over Rs 12 lacs and is 30% for incomes over Rs
15 lacs.
- Instances have come to notice where the LRS payments are
disproportionately high when compared to the disclosed incomes
- No changes in medical or Education expenses- Position stays as it
was before the Finance Act 2023.
- Primary Impact only on investment in assets such as real estate,
bonds, stocks outside India by HNI and tour travel packages or gifts to
non-residents.
- Those individuals remitting from their own funds are normally
expected to be higher-income taxpayers, and for those remitting through
institutional loans for education, a concessional rate of 0.5 % is
provided.
4. What are the changes or increases in rates of
TCS?
Ans. The TCS rates with the changes brought about
in Finance Act 2023 are tabulated as under:
(i) Remittance for the purpose of any education [No
Change]
|
|
Old Position
(up to 30.06.2023)
|
After Finance
Act, 2023
(from 01.07.2023)
|
|
Nature
|
Threshold
|
Rate
|
Threshold
|
Rate
|
|
If the amount
being remitted out a loan obtained from any financial institution as defined
in section 80E
|
7,00,000
|
0.5%
|
7,00,000
|
0.5%
|
|
Remittance is
not out of loan from a financial institution
|
7,00,000
|
5%
|
7,00,000
|
5%
|
(ii) Remittance for the purpose of any medical
Treatment (No Change)
|
|
Old Position
(up to 30.06.2023)
|
After Finance
Act 2023
(from 01.07.2023)
|
|
Nature
|
Threshold
|
Rate
|
Threshold
|
Rate
|
|
Remittance is
for Medical Treatment
|
7,00,000
|
5%
|
7,00,000
|
5%
|
(iii) Sale of Overseas tour package
|
|
Old Position
(up to 30.06.2023)
|
After Finance
Act 2023
(from 01.07.2023)
|
|
Nature
|
Threshold
|
Rate
|
Threshold
|
Rate
|
|
Remittance is
for the purchase of a tour package
|
Nil
|
5%
|
Nil
|
20%
|
(iv) Any other Remittance (for Bonds, shares, real
estate gifts etc.)
|
|
Old Position
(up to 30.06.2023)
|
After Finance
Act 2023
(from 01.07.2023)
|
|
Nature
|
Threshold
|
Rate
|
Threshold
|
Rate
|
|
Remittance is
for any other purpose
|
7,00,000
|
5%
|
Nil
|
20%
|
5. What is the impact on travel and incidental
expenses related to education and medical treatment
Ans. For TCS on remittance for travel and incidental expenses related to
education and medical treatment, the rates of TCS as applicable to remittances
for education and medical treatment, respectively, shall apply. A detailed
clarification will be issued separately
Part B.
Clarifications on the Liberalized Remittance Scheme
The e-Gazette notification
dated 16th May 2023 omits Rule 7 of the FEM(CAT) Rules, 2000. Here are the
Frequently Asked Questions #FAQs w.r.t. the Liberalised Remittance Scheme .
1. What is
the notification dated 16th May 2023 amending the FEM (CAT) Rules, 2000?
The notification dated 16th
May 2023 omits Rule 7 of the FEM(CAT) Rules, 2000. In effect, it removes the
exemption given to the use of international credit cards for meeting his/her
expenses by a person when he is abroad. Even earlier, all current account
transactions undertaken on international credit cards in India were subject to
Rule 5 of the FEM(CAT) Rules and covered under Liberalized Remittance Scheme
(LRS). The notification dated 16th May 2023 does not effect any changes in the
use of international credit cards by residents while in India.
2. What is
Rule 7 of FEM(CAT) Rules, 2000?
Rule 7 of the FEM(CAT)
Rules, 2000 exempted the use of international credit cards from the LRS for
payments by a person towards meeting expenses while such a person is on a visit
outside India.
3. What was
the need for the notification?
While on a visit abroad, a
person could use international debit cards or other methods or international
credit cards for undertaking current account transactions. Payments by debit
cards etc. have been treated as LRS even earlier. Due to the exemption under
erstwhile Rule 7, expenditures through credit cards were not accounted for
under the specified LRS limit, which has led to some individuals exceeding the
LRS limits. Data collected from top money remitters under LRS reveals that
international credit cards are being issued with limits in excess of the
present LRS limit of USD 2,50,000. The differential treatment between debit
cards and credit cards needed to be removed in the interest of uniformity and
equity in the treatment of modes of drawal of foreign exchange and for
capturing total expenditures under LRS for prudent foreign exchange management
and to prevent by-passing of LRS limits. RBI had written to the government on
more than one occasion, pointing to the need to remove this differential
treatment.
4. What
modes of expenditure of foreign exchange are covered under FEM(CAT) Rules,
2000?
It includes the drawal of
foreign exchange from an authorised person and use of an International Credit
Card. International Debit Card or ATM Card. All such drawals for the purposes
specified in Schedule III (as explained in FAQ 3 above) are eligible for the
limit of US$ 2,50,000.
5. What are
the purposes under FEM (CAT) Rules, 2000, under which a resident individual can
avail of a foreign exchange facility?
As per Rule 5 of the FEM
(CAT) Rules, 2000, Individuals can avail of a foreign exchange facility for the
following purposes, as detailed in Schedule III of the Rules. within the LRS
limit of USD 2,50,000 on a financial year basis. Prior approval of the Reserve
Bank would be required for remittances exceeding the specified limits.
(i)
Private visits to any
country (except Nepal and Bhutan)
(ii)
Gift or donation
(iii)
Going abroad for employment
(iv)
Emigration
(v)
Maintenance of close
relatives abroad
(vi)
Travel for business, attending
a conference or specialised training or for meeting expenses for meeting
medical expenses, or check-up abroad, or for accompanying as an attendant to a
patient going abroad for medical treatment/ check-up
(vii)
Expenses in connection with
medical treatment abroad
(viii)
Studies abroad
(ix)
Any other current account
transaction.
The
Master Direction of RBI on LRS, available at
https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10192 may be
referred to.
6. Does LRS
cover business visits of employees?
No. When 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 bona fide of the transaction.
7. What is
Liberalised Remittance Scheme (LRS)?
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) Rules 2000 within the
limit of USD 2,50,000 only. The Scheme is not available to corporates,
partnership firms, HUF, Trusts etc.
Under the LRS, in the
financial year 2021-22, a total of USD 19.61 billion was remitted, rising from
USD 12.68 billion in 2020-21. In 2022-23, it rose to more than USD 24.0
billion, of which overseas travel accounted for more than half.
8. What is
a current account transaction?
As per FEMA Act, 1999, a
“current account transaction” means a transaction other than a capital account
transaction and without prejudice to the generality of the foregoing, such
transaction includes,
(i)
payments due in connection
with foreign trade, other current business, services, and short- term banking
and credit facilities in the ordinary course of business,
(ii)
payments due as interest on
loans and as net income from investments,
(iii)
remittances for living
expenses of parents, spouse and children residing abroad, and (iv) expenses in
connection with foreign travel, education and medical care of parents, spouse
and children.
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
|
|
16
|
2019-20
|
18761
|
|
17
|
2020-21
|
12684
|
|
18
|
2021-22
|
19611
|
|
19
|
2022-23
|
10698
|
Loan
was given by assessee to his cousin in Singapore on Capital account under
Liberalized Remittance Scheme in US Dollars, gain received by assessee owing to
foreign exchange fluctuation was in nature of capital receipt and hence not
taxable in hands of assessee
Assessee
extended a personal interest-free loan of US$ 2 Lakh (equivalent to Rs. 90
Lakhs) to his cousin in Singapore under Liberalised Remittance Scheme (LRS) of
RBI and received Rs. 1.12 crores as repayment thereof - Revenue held that gain
of Rs. 22 Lakhs owing to foreign exchange fluctuation was taxable as income
from other sources. However, it was found that said loan was given on capital
account and was not given in course of business of assessee and accretion of
money in rupee terms was on account of increase in value of US Dollars advanced
as a capital transaction and not on account of interest payment. Therefore,
gain received by assessee owing to foreign exchange fluctuation was in nature
of capital receipt and hence not taxable in hands of assessee. [In favour of
assessee] (Related Assessment year : 2013-14) – [Aditya Balkrishna Shroff v.
ITO (2021) 189 ITD 587 : 127 taxmann.com 343 (ITAT Mumbai)]
