Liberalised Remittance Scheme

Liberalised Remittance Scheme (LRS) established by the Reserve Bank of India on February 4th, 2004 to permit citizens of India to transfer funds abroad for permitted current or capital account transactions or for both. In this article, we look at the Liberalised Remittance Scheme in detail.

Liberalised Remittance Scheme

Liberalised Remittance Scheme is applicable to all residents including the minors. If a minor has to apply for this scheme, Form A2 has to be filled and duly signed by the minor's guardian. Under the Liberalised Remittance Scheme, residents of India are permitted to remit up to USD 250,000 for one financial year which is from April - March. The remittance can be made for any permitted current or capital account transactions or for both. However, only residents are covered under the Liberalised Remittance Scheme. This scheme is not applicable to corporates, partnership firms, HUF, Trusts, etc. The remittances made under this scheme can be merged with the family members by complying with the terms and conditions. This merging is not allowed for other family members for capital account transactions such as opening a bank account/investment/purchase of the property if they are not the co-owners/co-partners of the overseas bank account/ investment/property. Finally, transactions that are not authorized by FEMA are also not applicable under this scheme. The capital transactions permitted under the Liberalised Remittance Scheme are as follows.

Open an account in a foreign country.
Purchase a property abroad.
Make investments in a foreign country.
Establish wholly-owned subsidiaries and joint ventures (JV).
Extend loans in INR to the NRIs.

Documents Required

The following documents are required for the individual remitting the money.

Form A2 has to be furnished as Annex to purchase the foreign exchange under LRS.
PAN should be furnished to make the remittance.

A copy of Form A2 is reproduced below for reference [pdf-embedder url="https://www.indiafilings.com/learn/wp-content/uploads/2018/06/Form-A2-Liberalised-Remittance-Scheme.pdf" title="Form A2 Liberalised Remittance Scheme"]

Investment in Foreign Business

Liberalised Remittance Scheme allows Indian Nationals to open foreign bank accounts, purchase property abroad, invest in shares of a foreign company or set up wholly-owned subsidiaries. However, the following important conditions are applicable to any remittance made by an Indian National in a foreign company:

Investment in a JV or Subsidiary abroad which is engaged in the real estate business or banking business or in the business of financial services activity is not permitted.
Investment in a JV or Subsidiary located in a country that has been designed as "non co-operative countries and territories" by the Financial Action Task Force (FATF) is not permitted.
The individual must not be on the Reserve Bank’s exporters caution list or list of defaulters to the banking system or under investigation by any investigation or enforcement agency or regulatory body.

Applicability of Liberalised Remittance Scheme

Liberalised Remittance Scheme is applicable for an individual for the given purposes. They are

Private visits
Gifts and Donation
Going abroad for employment
Emigration
Maintenance of close relatives abroad
Business trip
Medical Treatment Abroad

Private visits

A resident can acquire foreign exchange up to USD 250,000 for private visits to foreign countries other than Nepal and Bhutan. This amount is offered by an Authorised Dealer or by an FFMC.

Gifts and Donation

An individual is eligible to remit up to USD 250,000 as gifts or donation for one financial year to a person or to an organization outside India.

Employment

A resident can avail up to USD 250,000 as foreign exchange for one financial year if he or she is going abroad for employment.

Emigration

A person wanting to emigrate can draw foreign exchange of up to USD 250,000. Remittance of any amount of foreign exchange outside India in excess of this limit can be allowed only towards meeting incidental expenses in the country of immigration and not for earning points or credits to become eligible for immigration by way of overseas investments in government bonds, land, commercial enterprise, etc. Hence, the Liberalised Remittance Scheme is not used to remit money abroad for obtaining residency through the business or investment route.

Maintenance of Close Relatives

A resident is eligible to remit up to USD 250,000 for one financial year. This is for the maintenance of close relatives in a foreign country.

Business Trip

A resident who goes on a business trip to attend an international conference, seminar, specialized training, apprentice training, etc. can avail up to USD 250,000 as foreign exchange for one financial year. If an employee goes on a business trip, the expenses will be considered as residual current account transactions outside LRS. This will be permitted by the AD without any limits.

Medical Treatment Abroad

A resident who goes abroad for medical treatment can avail up to USD 250,000 for one financial year. This is without insisting on an estimate from a hospital or a doctor. If the amount is more than the limit, the authorized dealers release a foreign exchange under general permission which is based on the estimate made by the doctor in India or hospital or doctor abroad. This is applicable to people who fall sick while staying in abroad. With addition to this, a sum of USD 250,000 is provided for the person who is accompanying the patient. Click here to learn more about Tax on Dividend Income: Taxation of Dividend Income