Procedure for investing abroad via Liberalised Remittance Scheme (LRS):
Did you know, you can purchase a property, acquire shares, debt instruments, invest in mutual funds and many other assets abroad? Yes, it is possible. Reserve Bank of India (RBI) introduced “Liberalised Remittance Scheme (LRS)” on February 04, 2004. Under the scheme, resident individuals are allowed to remit funds outside India for the permissible Capital/ Current a/c transactions or a combination of both.
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What is Liberalised Remittance Scheme (LRS)?
It is a scheme which allows resident individuals to freely remit funds abroad up to USD 2,50,000 in a financial year for any permitted capital or current account transaction or a combination of both, through Authorised Dealers.
Who is an Authorised Dealer (AD)?
An Authorised Dealer (AD) is a person specifically authorised by the RBI under Section (10) of Foreign Exchange Management Act, 1999 (FEMA), to deal with the foreign exchange or foreign securities transactions. AD normally includes Banks.
Who are eligible for Liberalised Remittance Scheme (LRS)?
LRS is available for all the resident individuals including minors. If the remitter is a minor, Form A2 has to be countersigned by the minor’s natural guardian.
Remittances under the scheme can be combined in case of family members, only if the individual family members comply with the terms and conditions of the scheme. However, consolidation is not allowed by other family members for capital account transactions such as investment or purchase of property, opening a bank account, if they are not the co-owners or co-partners of the overseas investment/property or bank account.
Note: LRS is not available for partnership firms, corporates, trusts, HUF, etc.
Which Capital account transactions are allowed under Liberalised Remittance Scheme (LRS)?
Below is a list of Capital account transactions allowed for an individual under LRS:
• Purchasing a property abroad.
• Opening of a foreign currency account with a bank abroad.
• Making any investment abroad such as acquisition and holding shares of both listed or unlisted overseas company or debt instruments.
• Investments in mutual fund units, unrated debt securities, venture capital funds, promissory notes.
• Acquisition of ESOPs.
• Establish Wholly Owned Subsidiaries and Joint Ventures abroad for bonafide business subject to terms and conditions listed in the Notification No FEMA.263/ RB-2013 dated March 5, 2013.
• Providing loans including loans in Indian Rupees to NRIs who are relatives as defined in Companies Act, 1956.
What are the current account transactions permitted under Liberalised Remittance Scheme (LRS)?
The current account transactions allowed under LRS are listed below:
• Private visits:
An individual can obtain foreign exchange up to USD 2,50,000 for any private visits abroad excluding Nepal and Bhutan from an Authorised Dealer (AD) or Full-Fledged Money Changers (FFMCs) in a financial year, irrespective of the number of visits during the year.
An individual who wants to emigrate is allowed to draw foreign exchange from AD Category I bank and AD Category II not extending the amount prescribed by the country of emigration or USD 2,50,000.
• Business Trip:
If an individual goes abroad for attending an international conference, apprentice training, seminar, specialised training, etc. he/she can avail foreign exchange up to USD 2,50,000 in a financial year irrespective of the number of the visits.
However, if an entity has placed an employee for any of the above purpose and the expenditures are being borne by the latter, such expenditures are liable to be considered as residual current a/c transactions outside LRS and may be allowed by the AD without any limit subject to the verification of the bonafides of the transaction.
A resident individual can remit up to USD 2,50,000 as a gift to any person residing outside India or as a donation to any organisation outside India, in a fiscal year.
• Maintenance of close relatives:
An amount up to USD 2,50,000 can be remitted by the resident individual towards the maintenance of close relatives abroad, as defined in Section 6 of the Indian Companies Act, 1956.
• Going abroad on employment:
Funds up to USD 2,50,000 can be drawn as a foreign exchange by a resident individual going abroad for employment.
• Facilities for students pursuing studies abroad:
Foreign exchange of up to USD 2,50,000 may be released by the AD Category I bank and AD Category II for resident individuals pursuing studies abroad without seeking for any estimate from the Foreign University. They may also allow for remittances exceeding USD 2,50,000 based on the estimation received from the concerned institutions abroad.
• Medical treatment:
A person falling sick after going abroad may seek for foreign exchange up to USD 2,50,000 from an AD, for the medical treatment outside India. Also, an amount up to USD 2,50,000 is allowed in a fiscal year to a person accompanying a patient as an attendant; who is going abroad for a check-up or medical treatment.
Documentation required by the Remitter
The resident individual is required to assign a branch of an AD through which all the remittances under the scheme will take place. The individual is also required to furnish Form A2 as an annexure for the purchase of foreign exchange under the scheme.
It is necessary to have PAN card for making remittances in case of capital account transactions. On the other hand, PAN card may not be required for the permissible current account transactions up to USD 2,50,000.
You can download Form A2 from the link below:
Click here to download Form A2
Facility to grant loan in rupees to Non-resident Indian (NRI)/ Person of Indian Origin (PIO) close relative under the Scheme
Resident individuals are allowed to grant loan to the NRI/ PIO close relative through a crossed cheque or electronic transfer subject to the below conditions:
• The loan is for a minimum tenure of 1 year and is free of interest.
• The loan amount is within the prescribed limit of USD 2,50,000 for a financial year.
• The loan must be utilised to meet the borrower’s personal requirements or for his own business purposes in India.
• The loan amount should not be utilised either singly or jointly with any person for any of the activities under which the investments are prohibited for the persons residing outside India. Such activities include investments in Nidhi Company, Business of Chit funds, trading in Transferable Development Rights (TDRs), Agricultural or plantation activities or in real estate business or construction of farm houses.
• The loan amount shall be credited to the NRO account of the NRI/ PIO and the credit for such loan amount must be treated as an eligible credit to the NRO account.
• Remittance of the loan amount shall not be outside India.
• The loan shall be repaid through inward remittances through normal banking channels or by debit to the NRE/ NRO/ FCNR account of the borrower or from the sale proceeds of the securities or shares or immovable property against which the loan was granted.
Also read: All you need to know about FATCA & CRS Compliance
Prohibited Remittances under the Scheme
• Transactions like remittance for margins or margin calls to overseas exchanges/ overseas counterparty are not permissible under the scheme.
• The scheme does not allow for remittances of any purpose specifically prohibited under Schedule I of Foreign Exchange Management (Current a/c Transaction) Rules, 2000, dated May 3, 2000. Prohibited remittances include Remittance from lottery winnings, income from racing/ riding or any other hobby, purchase of banned/prescribed magazines, football pools, sweepstakes, etc.
• The scheme is also not available for any item restricted under Schedule II of Foreign Exchange Management (Current a/c Transaction) Rules, 2000, dated May 3, 2000.
• Capital account remittances are not available for the countries identified as non-cooperative countries and territories by the Financial Action Task Force (FATF).
• No direct or indirect remittances are available for the individuals and entities recognised as posing a significant risk of executing acts of terrorism , as advised by RBI to the banks.
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Other Important points on LRS
• Resident Individuals can use the scheme for outward remittances in the form of DD in the name of the beneficiary with whom they intend to make the permissible transactions at the time of their visit to abroad or under their own name, in the prescribed format for self-declaration.
• Individuals are allowed to open, maintain and hold foreign currency accounts with any bank outside India for making remittances under the scheme without having to take any prior approval from RBI. These accounts may be used for all the transactions related to the remittances eligible under the LRS.
• Remittances under the scheme can also be used for purchasing the objects of art subject under the provisions of other applicable laws.
• Investors are allowed to retain, reinvest the income earned on the investments for the remitted funds under the scheme. Currently, resident individuals do not have to repatriate the funds or income generated from the investments made under the scheme.
Liberalised Remittance Scheme (LRS) is a platform introduced by RBI that simplifies the process of remitting funds outside India for the resident individuals without having a need to seek special approval from RBI up to the extent of USD 2,50,000.
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