NR Connect

Liberalised Remittance Scheme

What is Liberalised Remittance Scheme (LRS)?

Liberalised Remittance Scheme is a scheme introduced by RBI as liberalisation measure to facilitate Resident Individuals (RI) to freely remit funds upto USD 2,50,000/- outside India in a financial year (April to March) for any permissible current or capital account transaction or a combination of both.

Who is eligible to remit funds outside India under LRS?

RIs are eligible to avail benefit of LRS. The person must be a person resident in India as per FEMA. Once an individual is a resident under FEMA, he is eligible to avail benefits of LRS, whether or not he is an Indian citizen.
However, LRS is not available to corporates, partnership firms, HUF, Trusts, etc.

What are the permissible current account transactions under LRS?

The following are permissible current account transactions under LRS:

  • Private visit (other than Nepal & Bhutan)
  • Gift or Donation including rupee gift to Non Resident Indian (NRI) / Person of Indian Origin (PIO), who is a close relative
  • Emigration
  • Overseas business trip
  • Medical treatment abroad
  • Pursuing studies outside India
  • Going outside India for employment
  • Maintenance of close relatives abroad

Which Capital account transactions are permissible under LRS?

The following are the permissible Capital account transactions under LRS:

  • Opening of foreign currency account abroad with a bank outside India
  • Purchase of property abroad
  • Investments in shares, securities, mutual funds, etc abroad
  • Setting up wholly owned subsidiaries (WOS) and Joint Venture (JV) abroad for bonafide business subject to stipulated terms and conditions
  • Extending loans in INR to NRIs who are relatives as defined in Companies Act, 2013

Can bankers open foreign currency accounts in India for residents under LRS?

No.

Can exchange facility be availed in excess of USD 2,50,000/- ?

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

In other cases, prior RBI permission is required to remit funds exceeding USD 2,50,000/-

Can remittances be made only in US Dollars?

The remittances can be made in any freely convertible foreign currency.

Is there any restriction on number of remittances during a FY?

There is no restriction on frequency or number of transactions during a FY. However, total amount of foreign exchange remitted through, all sources in India under LRS during the current FY should be within LRS limit (currently at USD 250,000/-).

Can a remittance under the LRS be made by a minor?

Yes, LRS facility is available to all RIs including minors. In case of remitter being a minor, Form A2 may be required to be countersigned by minor’s natural guardian.

An Indian passport holder is residing in Singapore for his employment since the last 20 years. Will he be eligible for availing LRS?

Since he has left India for employment purpose, he shall be treated as a person resident outside India under FEMA. He would not be eligible for availing LRS even though he is an Indian citizen.

Can remittances under LRS be consolidated in respect of family members?

Remittances under LRS can be consolidated in respect of family members (including minors) subject to individual family members complying with LRS terms and conditions. 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 overseas bank account, investment / property.

Is the AD required to check permissibility of remittances based on nature of transaction or allow the same based on remitters declaration?

AD will be guided by the nature of transaction as declared by the remitter in Form A2 and will thereafter certify that the remittance is in conformity with the instructions issued by the RBI in this regard from time to time. However, the ultimate responsibility is of the remitter to ensure compliance to the extant FEMA rules / regulations.

Is it mandatory for RI to have PAN for outward remittance under LRS?

Yes, it is mandatory for the RI to provide his / her PAN for all transactions under LRS made through AD Bank.

What is not permitted under LRS?

The remittance facility under the scheme is not available for the following purpose:

  • Remittance for any prohibited activities such as margin trading, lottery, etc.
  • Remittance for purchase of Foreign Currency Convertible Bonds issued by Indian Companies in the overseas secondary market
  • Remittance for trading in foreign exchange abroad
  • Capital Account remittances, directly or indirectly to countries identified by the Financial Action Task Force (FATF) as “Non co-operative countries and territories”, from time to time
  • Remittance directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the RBI to the banks

Are RI under LRS required to repatriate back to India the accrued interest / dividend on deposits / investments abroad, over and above the principal amount?

No, the investor can retain and reinvest the income earned from portfolio investments made under LRS. However, a RI who has made overseas direct investment in equity shares and compulsorily convertible preference shares of a Joint Venture or Wholly Owned Subsidiary outside India, within the LRS limit, then he / she shall have to comply with terms and conditions as prescribed under FEMA.

A RI, intends to give loan abroad under LRS? Can he do so?

Yes, a RI can give loan to relatives (as defined under the Companies Act) abroad by under LRS as extension of loans is a permissible capital account transaction.

A RI has gifted an amount of USD 1,50,000 to his daughter in USA in October 2018. He intends to gift another amount of USD 1,00,000 to his son in UK before March 2019. Can he do so?

Yes, since the RI has partly utilized the limit of USD 250,000/-, he can gift an additional amount of up to USD 1,00,000/- before March 31, 2019. No further remittances shall be permitted in FY 2018-19 since the LRS limit has been utilized.

A RI has gifted an amount of USD 250,000 to her daughter in USA in December 2018. She intends to remit additional amount of USD 50,000/- to her daughter for her maintenance before March 2019. Can she do so?

No. In accordance with regulations governing current account transactions remittance for maintenance of close relative abroad has also been subsumed under the LRS limit. She cannot remit additional amount of USD 50,000/- to her daughter (a close relative) since the LRS limit has been utilized.

Whether credit facilities (fund or non-fund based) in Indian Rupees or foreign currency can be extended by AD banks to RI?

LRS does not envisage extension of fund and non-fund based facilities by the AD banks to their RI customers to facilitate remittances for capital account transactions under LRS.

However, AD banks may extend fund and non-fund based facilities to RIs to facilitate current account remittances under LRS.

Can a sole proprietor remit funds 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.

Can a RI make a rupee loan to an NRI / PIO who is a close relative of RI, by of crossed cheque / electronic transfer?

A RI is permitted to make a rupee loan to an NRI / PIO who is a close relative of the RI (as per the Companies Act, 2013) by way of crossed cheque / electronic transfer as per the stipulated conditions.

Can a RI make a rupee gift to an NRI / PIO who is a close relative of RI, by of crossed cheque / electronic transfer?

A RI can make a rupee gift to an NRI / PIO who is a close relative of the RI [relative’ as defined in Section 2(77) of the Companies Act, 2013] by way of crossed cheque / electronic transfer. The amount should be credited to the Non-Resident (Ordinary) rupee account (NRO) account of the NRI / PIO and credit of such gift amount may be treated as an eligible credit to NRO account. The gift amount would be within the overall limit of USD 250,000 per FY as permitted under the LRS for a RI. It would be the responsibility of the resident donor to ensure that the gift amount being remitted is under the LRS and all the remittances made by the donor during the financial year including the gift amount have not exceeded the limit prescribed under LRS.

Content Partners : G. P. Kapadia & Co. | Chartered Accountants
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