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LIBERALIZED REMITTANCE SCHEME
deepshikha pandey 22 May 2018

LIBERALIZED REMITTANCE SCHEME

LIBERALISED REMITTANCE SCHEME

Facility for resident individual to spend money in outside country in foreign currency for the purpose of studies, treatment, or asset purchase.

Liberalized remittance scheme The Liberalized Remittance Scheme (LRS) is a facility provided by the RBI for all resident individuals including minors to freely remit upto a certain amount in terms of US Dollar for current and capital account purposes or a combination of both. Hence under the LRS, individuals are allowed to spend money in foreign countries for specific purposes like education, tourism, asset purchase etc.  The remittance limit is set for a financial year. Regulations for the scheme are provided under the FEMA Act 1999.

Under LRS, remittances can be made for overseas education, travel, medical treatment, apart from maintenance of relatives living abroad, gifting and donations. The money can be remitted for the purchase of shares and property as well. These share and property purchases are the main capital account purposes allowable under the LRS.  Individuals can also open, maintain and hold foreign currency accounts with overseas banks for carrying out transactions.

Basically, LRS is the facility provided to resident individual to buy stocks and properties abroad. Resident individual can make investment under LRS up-to USD 250000 per financial year. But if amount has already remitted under LRS then that particular amount shall be reduced from the limit of USD 250000 to calculate the limit for that particular financial year.

Following are the permissible capital account transaction which can be made feely under LRS-

·         Opening and maintaining foreign currency account

·         Purchasing any property abroad

·         Making any investment in the stocks of foreign company

·         Establishing Wholly Owned Subsidiary or Joint Venture Abroad

·         Extending loan, providing loan in Indian currency to NRI, who are relatives

Following are the permissible capital account transaction which can be made feely under LRS-

·         Private Visits to any country (except Bhutan and Nepal)

·         Gifts or donation

·         Going abroad for employment

·         Emigration

·         Maintenance of close relatives abroad. Relative as per Section 6 of the Companies Act

·         Business Trip

·         Medical Treatment abroad

·         Education abroad

·         Any other permissible current account transaction as per FEMA.

Remittances are permitted for overseas education, travel, medical treatment and purchase of shares and property, apart from maintenance of relatives living abroad, gifting and donations.

Remittances are NOT permitted for trading on the forex markets, margin to overseas exchanges and counterparties and the purchase of FCCB issued by Indian companies abroad.

The Liberalized remittance scheme is not allowed for illegal or prohibited activities including margin trading and lottery.

This scheme was introduced in 2004 with the limit of USD 25000 per financial year. Then the limit for spending under LRS was revised to USD 125000 but again due to certain fall in foreign exchange the same was reduced to USD 75000. In June 2014 again there was hike in foreign exchange and foreign direct investment the limit under LRS was increased to USD 125000.

In February 2015, RBI governor Mr. Raghu Rajan announced that the limit under LRS shall be increased to USD 250000 and because of misunderstanding several high earning individual invested in foreign assets beyond limit and for which RBI issued SCN to them.  

The Reserve Bank has raised the upper limit for foreign exchange remittances under the LRS to USD $ 250,000 per person per year. This enhancement in remittance limit comes after a review of the external sector outlook and is a part of macro prudential management, the central bank has noted in the press release declaring the policy change.

Requirement of Compliances under LRS-

The resident individual is required to make an application cum declaration in prescribed format to Authorized dealer or FFMC. An Authorized Dealer (AD) is any person specifically authorized by the Reserve Bank under Section 10(1) of FEMA, 1999, to deal in foreign exchange or foreign securities (the list of ADs is available on www.rbi.org.in) and normally includes banks.

Resident individual can also purchase foreign exchange which shall also be included for reckoning the limit of USD 250000. But proper declaration accordingly shall be made.

AP (DIR SERIES) CIRCULAR NO 23

With the purpose of proper compliance and to ensure proper restriction has been made for disclosure of transaction on daily basis.

RBI issued an circular to all Category-I Authorized Dealer Banks-

To ensure compliance under LRS limits Daily Reporting System by AD Banks has been introduced which shall be accessible to all Authorized Dealer Bank.

All AD shall be required to upload daily transaction wise information undertaken at the close of business of next working day.

If no such transaction has taken place then AD shall upload a ‘NIL’ Report.

The report shall be uploaded in CSV file (comma delaminated) by accessing XBRL site link http://secweb.rbi.org.in/orfxbrl/

The aforesaid compliance has been inserted in respect to section 10(4), 11(1) and 11(2) of FEMA Act 1999.

Exception to LRS:

Medical treatment

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 documents. If the Authorized Dealer is satisfied with the documents, it can let one remit more than USD 250,000 without approval from RBI.

The person who is accompanying the patient as an attendant is also allowed to remit up to USD 250,000 per financial year.

Students going abroad

The remittance under this head is also subsumed under LRS.

Like with medical treatment, one need not 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.

Authorized Dealer’s role:

Remittances under LRS do not require RBI approval. RBI has delegated the power to Authorized dealers. Authorized dealer (banks or entities such as Thomas Cook) has to satisfy itself that the remittance/drawal of foreign currency is not in contravention of FEMA or Income Tax Act.

For compliance with FEMA, it may rely on Form A2 (for payments other than imports and remittances covering intermediary trade) and declaration under LRS.

For compliance with Income Tax Act, it will rely on Form 15 CA and Form 15 CB, if required.

Apart from this, it must also follow KYC guidelines and anti-money laundering rules before effecting the remittance.

The Authorized Dealer has to ensure that the payment for purchase of foreign exchange is being made out of funds belonging to the remitter.

Therefore, payment for purchase of foreign exchange must be made by cheque/demand draft/ debit card/ credit card/pay order/net banking.

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