Introduction
The Liberalised Remittance Scheme (LRS) is a financial mechanism that grants residents, including minors, the liberty to remit up to USD 2,50,000 per financial year for a variety of transactions. Enabling individuals to engage in permissible current and capital account activities or a combination of both, the LRS has been an integral part of India’s financial landscape since its introduction on February 4, 2004, initially with a limit of USD 25,000. This limit has undergone revisions over time, reflecting the ever-changing macro and microeconomic conditions.
Understanding the LRS Limit
The LRS limit allows residents to freely remit funds within the prescribed ceiling. It is important to note that this scheme is not available to corporates, partnership firms, Hindu Undivided Families (HUFs), Trusts, and similar entities.
Prohibited Items under the Scheme
Certain items and transactions are explicitly excluded from the LRS framework. Prohibited activities include remittances for purchasing lottery tickets, engaging in sweepstakes, acquiring proscribed magazines, and other items restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000. Additionally, remittances for margin calls, trading in foreign exchange abroad, and the purchase of Foreign Currency Convertible Bonds (FCCBs) issued by Indian companies in the overseas secondary market are not permissible under the LRS.
Capital account remittances, directly or indirectly, to countries identified as “non-cooperative countries and territories” by the Financial Action Task Force (FATF) are restricted. Furthermore, remittances to individuals and entities identified as posing significant risks of terrorism, as advised by the Reserve Bank, are also prohibited. Gifting in foreign currency from one resident to another for the credit of the recipient’s foreign currency account held abroad under LRS is another restricted activity.
Purposes Under FEM (CAT) Amendment Rules, 2015
Residents can avail themselves of the LRS for a spectrum of purposes outlined in the Foreign Exchange Management (Current Account Transactions) Amendment Rules 2015. These include private visits to any country (except Nepal and Bhutan), gifting, employment abroad, emigration, maintenance of close relatives abroad, business travel, attending conferences or specialized training, medical expenses, and studies abroad. Additionally, any other current account transaction not covered under the definition of current account in FEMA 1999 is eligible for LRS.
Authorized Dealer (AD) banks may facilitate remittance transactions without RBI’s permission for residual current account transactions not prohibited or restricted under Schedule I, II, or III of FEM (CAT) Rules 2000, as amended, or defined in FEMA 1999. It remains the responsibility of the AD to ensure the genuineness of the transaction.
Repatriation of Income Earned on Investments Abroad
Investors who remit funds under LRS can retain and reinvest the income generated from their investments made under the scheme. However, any unutilized foreign exchange must be repatriated and surrendered to an authorized person within 180 days from the date of receipt, realization, purchase, acquisition, or return to India.
Additionally, any additional repatriation requirements concerning investments made under the Overseas Investments Rules and Regulations 2022 must also be adhered to.
Consolidation of Remittances for Family Members
Remittances under the LRS can be consolidated for family members, provided individual family members adhere to the terms and conditions of the scheme. However, for capital account transactions such as opening bank accounts and investments, consolidation is not allowed unless family members are co-owners or co-partners in the investment or overseas bank account. Remittances for acquiring immovable property outside India from a person resident outside India may be consolidated for relatives, subject to their compliance with the LRS terms and conditions.
Permissibility Check by AD and Declaration by Remitter
The AD will verify the permissibility of remittances based on the nature of the transaction as declared by the remitter in Form A2. Subsequently, the AD will certify that the remittance aligns with the instructions issued by the Reserve Bank. However, the ultimate responsibility for ensuring compliance with the extant FEMA rules and regulations lies with the remitter.
Mandatory PAN for Outward Remittances
For all transactions under LRS made through Authorized Persons, it is mandatory for the resident individual to provide their Permanent Account Number (PAN).
No Restrictions on Frequency of Remittances
Unlike restrictions on frequency, there are no limitations on the frequency of remittances under LRS. However, the total amount of foreign exchange purchased or remitted through all sources in India during a financial year should not exceed the cumulative limit of USD 2,50,000. Once a remittance is made for up to USD 2,50,000 during the financial year, the resident individual becomes ineligible for further remittances under this scheme, even if the proceeds of the investments are brought back into the country.
Remittances Beyond Net Salary for Non-Permanently Resident Individuals
Non-permanently resident individuals can remit up to their net salary after deduction of taxes. If the individual has exhausted this limit and desires to remit any other income under LRS, they may approach the RBI with documents through their AD bank for consideration.
Bank Account Maintenance Period for Capital Account Transactions
For capital account transactions, the applicant seeking to make the remittance must have maintained a bank account with the AD bank for a minimum period of one year prior to the remittance. This is to ensure due diligence on the opening, operation, and maintenance of the account.
Remittances to Mauritius and Pakistan
There are no restrictions on remittances for current account transactions to Mauritius and Pakistan. However, caution is advised, as certain activities, such as remittances to countries identified by FATF as “non-cooperative countries and territories” and to individuals and entities identified as posing a significant risk of committing acts of terrorism, are not permissible.
Documents Required for Withdrawal/Remittance
A Permanent Account Number (PAN) is mandatory for all transactions under LRS. Depending on the nature of the transaction, specific documents may be required for withdrawal or remittance.
Facilities under Schedule III of FEM (CAT) Amendment Rules, 2015 for Persons Other Than Individuals
Entities other than individuals have access to various facilities under Schedule III, such as donations, commissions, consultancy services, and specific remittance limits. However, any transactions exceeding the specified limits require prior approval from the Reserve Bank of India.
Rupee Loan and Gift to NRI/PIO
Residents can extend interest-free rupee loans and make rupee gifts to close relatives who are Non-Resident Indians (NRIs) or Persons of Indian Origin (PIOs), subject to specific conditions.
Conclusion
In conclusion, a nuanced understanding of the Liberalised Remittance Scheme is vital for residents engaging in cross-border financial activities. Adhering to the prescribed limits and guidelines ensures a seamless and legally compliant process. Whether it’s for personal reasons, investments, or supporting family members abroad, residents can leverage the LRS to navigate the global financial landscape responsibly. Stay informed, comply with regulations, and make the most of the opportunities presented by the Liberalised Remittance Scheme.
