RBI makes Liberalised Remittance Scheme (LRS) transactions more stringent

LRS is a perfectly legal transaction, but do read the FAQs on the RBI website.

RBI makes Liberalised Remittance Scheme (LRS) transactions more stringent

Here’s a hypothetical scenario: you have a married cousin who’s settled in the US, and she has just given birth to a baby girl. Naturally, as a new aunt – or uncle, if you’re a young man – you want to send your newborn niece some money. After all, it is an age-old Indian custom, right? The question is: how legal is it to remit money abroad?

In case you did not know: yes, you can legally transfer money abroad – to the US and most countries save a few – under the Liberalised Remittance Scheme (LRS). Moreover, you can do it as an individual Indian citizen, and not as a corporate entity.

In fact, entities other than individuals (corporates, partnership firms, HUF, trusts etc.) cannot avail of the scheme, though as a resident individual, minors can. However, in case the remitter is a minor, the requisite form (Form A2) needs to be countersigned by the minor’s natural guardian.

Liberalised Remittance Scheme transactions fall under the purview of the Indian Foreign Exchange Management Act (FEMA), and are sanctioned by the Reserve Bank of India (RBI), as long as certain conditions are fulfilled, such as the remittances not being to places identified by the Financial Action Task Force (FATF) as being ‘non-cooperative countries and territories’.

Related: Real estate deals by non-residents under the tax net 

Scheme outline 

The RBI laid down the Liberalised Remittance Scheme guidelines for the first time in 2004, and has updated them regularly since. As per the June 2015 update, as a resident Indian, you can send abroad up to $250,000 or its equivalent in any other currency in one financial year (April-March).

That is the maximum amount you can send abroad in one fiscal year: $250,000. If you have remitted the total permitted amount in a year, you would have reached the limit sanctioned, and will not be allowed to remit any more, to any country, for the rest of that fiscal.

There are no restrictions on the number of remittances under LRS, though the total amount remitted during a financial year should be within the permissible limit. Also, the limit applies for any permitted current or capital account transactions or a combination of both.

So, if you need to send money abroad, go right ahead. Just keep within the limit, and ensure the recipient does not live in an FATF blacklisted country. There are some other conditions mentioned in RBI’s FAQs on the subject; you can read them here.

Related: NRIs will no longer qualify to invest in Public Provident Fund

Scheme purpose

The Liberalised Remittance Scheme was first implemented in 2004 to offset foreign exchange influx and check exchange rate appreciation.

The scheme not only allowed resident citizens to convert their rupees and remit it to relatives abroad but also to invest in any foreign country without RBI’s approval, as long as the amount was under the permitted limits. (This limit has been revised regularly since 2004). 

As such, Liberalised Remittance Scheme also became a great tool for people to diversify their investments into foreign equities and properties. Under this scheme, they can acquire and hold shares or debt instruments or any other assets – including property outside India – provided RBI rules are adhered to.

However, so far it seems the outbound money is being earmarked less for investments and more for the education of the remitters’ children studying overseas, travel, and payments to relatives abroad. Media reports citing RBI data say that of the remittance outflows of $8.2 billion between April 2017 and January 2018, 90% was for these.

Related: Little known income tax facts for NRIs

RBI modifications 

However, the central bank soon detected cases of misuse of the scheme and dubious transactions under the cloak of LRS, which had also become a conduit for money-laundering. There were also cases of round-tripping, and the RBI sent notices to several companies in this regard.

Following this, the RBI made some amendments on April 5 and June 6 this year, making LRS transactions more stringent and accountable. 

The April amendment was aimed more at banks than individuals, as it made it mandatory for them to upload information on transactions on a daily basis, so that all banks were in the loop. RBI’s reasoning: to improve monitoring and ensure compliance with the LRS limits.

The June amendment introduced two upgrades aimed at the remitter, i.e. you. First, the RBI made the remitter’s Permanent Account Number (PAN) mandatory for all outward remittances, which was not so earlier. Second, it brought clarity to the definition of ‘close relative’, which was often being misused. 

“It has been decided,” the RBI notification read, “to align the definition of ‘relative’ with the definition given in the Companies Act, 2013 instead of the Companies Act, 1956.” The 2013 Act defines ‘close relatives’ as parents, spouses, children, and their spouses who are immediate relatives. 

Last words

If you want to transfer money abroad, just remember Liberalised Remittance Scheme is a perfectly legal transaction. But do visit the RBI website to read the FAQs; there are points one should be aware of. For example, it’s good to know the transactions for which withdrawal of foreign exchange has been prohibited by the central government, such as remittance out of lottery winnings. A working knowledge of the dos and don’ts can save you a lot of trouble with the authorities.


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