In reference to the FEMA, persons resident in India are free to buy or sell foreign exchanges for any current account transactions except for those transactions for which foreign exchanges withdrawal has been prohibited by Central Government. As liberalization measure to facilitate resident individuals to remit funds abroad for permitted current or capital account transactions or combination of both, Reserve Bank of India issues Liberalized Remittance Scheme.
Liberalized Remittance Scheme permits the Authorized Dealers to liberally allow remittance by resident individuals not more than USD 250,000 per Financial Year for any allowable as current or capital account transaction or a combination of both. The scheme is offered to all resident Individuals covering minors. The form A2 must be authenticated by the minor’s natural guardian in case remitter being a minor. The scheme is not available to corporates, partnership firms, HUF, Trust etc.
Remittance under the scheme can be consolidated in respect of family members subject to individual family members complying with its terms and conditions. However, clubbing is not permitted by other family members for capital transactions such as opening a bank account or investment or purchase of property, if they are not the co-owners or co-partners of the overseas bank account or investment or property. Further, a resident cannot gift to another resident anything which is in foreign currency, for the credit of the latter’s foreign currency account held abroad under LRS.
Permitted capital account transactions by way of an individual under LRS
To open a foreign currency account abroad with a bank;
Purchase of property outside the countries;
Making investment abroad – acquisition and holding shares of both listed and unlisted overseas company or debt instruments;
Acquisition of qualification shares of a foreign company for holding the post of Director; procurement 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;
Encompassing loans including loans in Indian Rupees to Non-Resident Indians (NRIs) who are relative as defined in Companies Act
Permissible Current Account Transactions by an individual under LRSThe limit of USD 250,000 per financial year (FY) under the scheme also includes or subsumes remittance for current account transactions such as:
Private Visit;
Gift or Donation;
Going to abroad on employment;
Emigration;
Maintenance of closed relatives abroad;
Business trip;
Medical treatment abroad; and
Studies abroad
It may be noted that release of foreign exchange in excess of USD 250,000, requires prior permission from the Reserve Bank of India.
Documentation by the remitter
The resident individual is required to compulsorily designate a branch of an Authorized Dealer through which all the remittance under the scheme will be made. The resident individual looking for to make the remittance should furnish Form A2 for purchase of foreign exchange under LRS;
It is mandatory to possess PAN card to make remittances under the scheme for each capital account transactions; and
Investors, who has remitted funds under LRS can hold, reinvest the income earned on the investments. At the present, the resident individual isn’t obligatory to banish the funds or income made out of investments made under the scheme.
However, a resident individual who has made foreign direct investment in the equity shares; Compulsorily convertible preferred stock of a Joint Venture outside or wholly owned subsidiaries outside India or ESOPs, within the prescribed limit of LRS, is required to comply with the terms and conditions recommended by the overseas investment procedures under Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulation, 201
Prohibit Items under the Scheme
Remittance of earnings out of lottery winnings;
Remittance of income from racing or riding etc. or the other hobby being pursued;
Remittances for purchasing of lottery tickets, banned or approved magazines, football pools, sweepstakes etc.;
Disbursement of commissions on exports made towards equity investment in joint ventures/ wholly owned subsidiaries abroad of Indian Companies;
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;
Disbursement associated to “call back services” of telephones; and
Remittance of interest income on capitals detained in Non-Resident Special Rupee (Account) Scheme.
Key Points to remember
There are not any restrictions on the occurrence of remittances under LRS. However, the whole amount of overseas exchange purchased from or remitted through, all sources in India during a financial year should be within the cumulative limit of USD 250,000;
A resident individual wouldn’t be eligible to make any further remittances under this scheme, once a remittance is made for an amount up to USD 250,000 during the financial year, even if the proceeds of the investments have been brought back to the country;
Resident individual excluding not permanently resident in India (RNOR) who have settled their entire earnings and salary and wish to supplementary remit ‘other income’ may approach RBI with documents through their Authorized dealer bank for consideration;
The remittances can be made in any freely convertible foreign currency but not only in US Dollars;
Liberalized Remittance Scheme does not visualize delay of fund and non-fund based amenities by the Authorized Dealer banks to their resident individual customers to facilitate remittances for capital account transactions under LRS. However, Authorized Dealer banks may extend fund and non-fund based amenities to resident individuals to facilitate current account remittances under the Scheme; and
Permanent Account Number (PAN) is obligatory for all transactions under the scheme.
Remittance Facility to Persons aside from Individuals: The following facilities are available to persons other than individuals:
Donations up-to one-hundredth of their foreign exchange earnings during the previous three financial years or USD 5,000,000, whichever is a smaller amount, for-
i. Establishment of Chairs in reputed educational institutes;
ii. Involvement to funds (not being an investment fund) encouraged by educational institutes; and
iii. Involvement to a technical association or body or association in the ground of activity of the donor company.
Commission based on each transaction, to agents abroad for sale of residential flats or commercial plots in India up to USD 25,000 or 5% of the inward remittance whichever is less;
Remittance up to USD 10,000,000 for each project for several consultancy service station in respect of infrastructure projects and USD 1,000,000 per project, for other consultancy services acquired from outside India;
Remittances up to 5% of investment carried into India or USD 100,000 whichever is a smaller amount, by an entity in India by way of settlement of pre-incorporation expenses;
Disbursement of fees in foreign currency – Embassy allied educational institutions;
Remittance towards payments of collated subscription to overseas TV media company;
Bids in foreign currency for developments to be implemented in India;
Sales of overseas telephone cards; and
Drawal of foreign exchange for remittance for purchase of trademark or franchise in India.
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 Authorized Dealer, as hitherto. It is for the Authorized Dealer to satisfy themselves about the genuineness of the transaction. Whatsoever in surplus of above limits entails prior approval of the Reserve Bank of India.
At AJSH, we assist and provide consultancy to our clients in regulatory compliances by providing them adequate support and guidance from our end. If you have queries in this regard, kindly contact us.
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