In February 2004, Reserve Bank of India intorduced the scheme of Liberalised Remittance Scheme. This scheme permitted remittance by resident individuals for permitted current and capital account transactions. The annual permitted limit was USD25,000/- per calendar year.
This limit was in addition to various limits prescribed under private travel, medical expenses, education abroad, gift etc, which were detailed in schedule 3 of Foreign Exchange Management Current Account Transactions Rules (FEM CAT Rules).
Over a period of 11 years, this scheme has been tweaked many times to suit the prevalent circumstances and further liberalisation. The elegible period was changed from calendar year to financial year in 2006.
Reserve Bank of India, in its review of Monetary Policy of February 2015 indicated its intentions of raising the limit from prevailing USD 125000/- to USD 250000/-. However, the formal announcement on 1st June 2015 implementing the revised limit was much more than the revision of limit. All other limits available for travel, education, medical expenses, gifts etc. have been subsumed under the overall limit of USD 250000/-.
Thus from now on in any financial year the limit available for any elegible current or capital account transaction is USD 250000/-. On production of documentary evidence exceptions have been made for three specified expenses (1) Medical Treatment, (2) Education and (3) Emigration.
Another improvement in the scheme is regarding the restriction of noimnating an Authorised Dealer. Earlier, the individual was tied up with a particular Authorised Dealer for the entire year. Now the system has been liberalised and the individual has to give a declaration regarding not violating the limit of USD 250000/-.
A word of caution is that the funds to be remitted have to be own funds. These should not be borrowed funds and no bank is permitted to extend credit or sanction limit for the purpose of LRS.
Thus the permissible capital account transactions by an individual under LRS are:
i) opening of foreign currency account abroad with a bank;
ii) purchase of property abroad;
iii) making investments abroad;
iv) setting up Wholly owned subsidiaries and Joint Ventures abroad;
v) extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in Companies Act, 2013.
The revised LRS has put a lot of onus and faith on the individuals. The adherence to the annual limit and ensuring end use is now the responsibility of the individual. The concerned AD bank will only ask for a declaration. The remittance should not be to a country which is not a signatory to FATF agreement.
Facilities for persons other than individuals:
Persons other than individuals can make remittances for
"provided also that a person other than an individual may also avail of foreign exchange facility, mutatis mutandis, within the limit prescribed under the said Liberalised Remittance Scheme for the purposes mentioned herein above"
Which implies that LRS has been extended to persons other than individuals.
This limit was in addition to various limits prescribed under private travel, medical expenses, education abroad, gift etc, which were detailed in schedule 3 of Foreign Exchange Management Current Account Transactions Rules (FEM CAT Rules).
Over a period of 11 years, this scheme has been tweaked many times to suit the prevalent circumstances and further liberalisation. The elegible period was changed from calendar year to financial year in 2006.
Reserve Bank of India, in its review of Monetary Policy of February 2015 indicated its intentions of raising the limit from prevailing USD 125000/- to USD 250000/-. However, the formal announcement on 1st June 2015 implementing the revised limit was much more than the revision of limit. All other limits available for travel, education, medical expenses, gifts etc. have been subsumed under the overall limit of USD 250000/-.
Thus from now on in any financial year the limit available for any elegible current or capital account transaction is USD 250000/-. On production of documentary evidence exceptions have been made for three specified expenses (1) Medical Treatment, (2) Education and (3) Emigration.
Another improvement in the scheme is regarding the restriction of noimnating an Authorised Dealer. Earlier, the individual was tied up with a particular Authorised Dealer for the entire year. Now the system has been liberalised and the individual has to give a declaration regarding not violating the limit of USD 250000/-.
A word of caution is that the funds to be remitted have to be own funds. These should not be borrowed funds and no bank is permitted to extend credit or sanction limit for the purpose of LRS.
Thus the permissible capital account transactions by an individual under LRS are:
i) opening of foreign currency account abroad with a bank;
ii) purchase of property abroad;
iii) making investments abroad;
iv) setting up Wholly owned subsidiaries and Joint Ventures abroad;
v) extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in Companies Act, 2013.
The revised LRS has put a lot of onus and faith on the individuals. The adherence to the annual limit and ensuring end use is now the responsibility of the individual. The concerned AD bank will only ask for a declaration. The remittance should not be to a country which is not a signatory to FATF agreement.
Facilities for persons other than individuals:
Persons other than individuals can make remittances for
- Donations for educational institutions - 1% of Forex earnings during last 3 years or USD 5 mio whichever is less
- Commissions to agents abroad for sale of residential flats/commercial plots in India - 5% of inflow or USD 25,000 whichever is higher
- Remittances for consultancy services - USD 10 mio for infrastructure project and USD 1 mio for other projects
- Remittances for reimbursement of pre-incorporation expenses - 5% of Investment inflow or USD 1 mio, whichever is higher
"provided also that a person other than an individual may also avail of foreign exchange facility, mutatis mutandis, within the limit prescribed under the said Liberalised Remittance Scheme for the purposes mentioned herein above"
Which implies that LRS has been extended to persons other than individuals.
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