RBI Notification

RBI Master Directions for Liberalised Remittance Scheme

The rise in the outflow of funds under the Liberalised Remittance Scheme indicates that the capital is flowing out from the country at a rapid rate. This rise in the outflow of funds compelled the Reserve Bank of India to update its master direction on Liberalised Remittance Scheme. Hence, on 24th August 2022, the RBI updated its previous Master Direction on liberalised master scheme issued via Master Direction No. 7/2015-16. These master directions were issued with the objective to liberalise measures, facilitating the resident individuals to remit funds abroad in their current or capital account transactions or a combination of both.

The updated regulations also include the directions issued to the authorised persons under Section 11 of the Foreign Exchange Management Act (FEMA), 1999^[1]. The authorised person has to conduct their foreign exchange businesses according to the direction issued under this regulation. All foreign exchange transactions have been classified as either capital account transactions or current account transactions under FEMA, 1999. Any transactions by a resident in India that do not alter his assets or liabilities, including his contingent liabilities, are termed as current account transactions.

Remittance Scheme of USD 2, 50,000 for resident Individuals

Under the Liberalised remittance scheme, all authorised dealers allowed all the resident individuals to freely remit up to USD 2, 50,000 during a financial year in their permissible current or capital account transaction or combination of both. Due to the changing economic conditions, these limits get modified to suit the best possible requirement of the economy. This scheme applies to all resident Individuals, including minors.

Remittance by Family Members:

This scheme allows remittances by family members. It states that a remittance can be allowed to the family members, provided that all the individual members of such family comply with the terms and conditions as mentioned in the regulation. However, other family members do not allow consolidation for capital account transactions, such as opening a bank account, if they are not the co-owner or co-partners of the overseas bank account.

Gifts not allowed:

A resident is not allowed to remit any foreign currency in the other resident account held by him aboard under the LRS. However, an individual can make a rupee gift to a Non-resident Indian or Person of Indian Origin subject to the conditions mentioned under the scheme.

Remittance for margin calls not allowed:

Any transaction related to the remittance for margins or margin calls to overseas exchanges or counterparties is not allowed under the Liberalised Remittance Scheme.

Eligible capital account Transaction under Liberalised Remittance Scheme

The Liberalised Remittance Scheme allows an individual to remit in their permissible capital account transaction by way of:

1. Opening a foreign currency account in an overseas bank
2. Acquisition of Immovable Property
3. ODI and OPI
4. Providing loans in Indian Rupees to NRI, provided they are relatives as defined in Companies Act, 2013.

Eligible current account Transaction under Liberalised Remittance Scheme

The remittance for current account transactions of up to USD 2, 50,000 is allowed for the following activities:

1. Private Visit Abroad: An authorised dealer may provide foreign exchange up to an aggregate amount of USD 2, 50,000 to a resident individual during a financial year, irrespective of the number of visits in that financial year. This aggregate amount of USD 2, 50,000 would include all the transactions relating to the cost of rail, road, water transportation, cost of euro rail, passes, tickets, hotel expenses aboard etc. Payment for all the expenses can be made in Indian Currency or foreign currency for the traveller.
2. Gift/Donation:  The LRS scheme is available to a resident individual who wants to gift a person residing overseas or wants to make any donations to the organisation working aboard. The resident person cannot remit more than USD 2,50,000 in one financial year.
3. Overseas Employment: A resident individual going abroad for the purpose of employment is allowed to draw foreign exchange up to USD 2,50,000 from any authorised dealer in India.
4. Emigration: A resident individual wanting to emigrate is allowed to draw foreign exchange from AD category I and category II banks. The limit for drawing cannot exceed the aggregate amount of USD 2, 50,000 or any amount prescribed by the country of Emigration. A resident may remit the amount more than the prescribed limit, provided that the amount is used for the purpose of meeting incidental expenses in the country of immigration. Any amount exceeding the specified limit will not be considered for remittance if it is made to earn credits to become eligible for immigration by way of investment in the land, government bonds, commercial enterprise etc.
5. Maintenance of Relatives Living abroad:A resident individual is allowed to remit up to an aggregate amount of USD 2, 50, 000 towards the maintenance of the relatives living abroad in one financial year.
6. Business Trip: The activities that are considered business activities are:

• Apprentice training
• Specialised training
• Seminar
• International Conference
• Any other visits relating to business activity

A resident individual is allowed to remit an aggregate amount of USD 2, 50,000 as foreign exchange in a financial year, irrespective of the number of visits taken during that financial year.Provided that if a business entity appoints a person for a foreign visit and all the expenses are borne by him, then, in that case, all the expenses incurred by him shall be treated as resident current account transactions outside the LRS limit. The AD bank may permit any amount beyond that limit.

7. Overseas Medical treatment: A resident person is allowed to remit an aggregate amount of USD 2, 50,000 from an authorised dealer without asking for an estimate or bill from a doctor or a hospital. An amount as foreign exchange for medical treatment can be remitted to a person when he falls sick during his journey abroad without any approval from RBI.If the foreign exchange is beyond the prescribed limit, then the authorised dealer shall insist on an estimate or bill from the doctor or a hospital.

Attendant of a Patient: The attendant of a patient is allowed foreign exchange up to an aggregate amount of USD 2, 50,000.

• Overseas Study: An aggregate amount of USD 2, 50,000 may be released by the AD Category I and Category II banks as foreign exchange to a student studying abroad. The bank could extend the limit based on an estimate received by the bank. The bank does not require any approval from RBI for remitting any amount beyond that limit.

Other modes of remittances under Liberalised Remittance Scheme

The LRS can be used for the other basic Purposes:

Objects of Art

A remittance is allowed to purchase objects of art, provided they are according to GOI’s foreign trade policy provisions.

In the form of DD

An individual can outward remittance in the form of DD either in his own name or in the beneficiary name with whom he intends to put through all the transactions during his private visit abroad. A self-declaration of the person who remits the account is required for approval.

Opening of Foreign Currency account:

A resident individual is allowed to hold and maintain a foreign currency account to permit the activities under the LRS scheme. All the transactions of the individuals for the purpose of remittances shall flow from this account of the individual.

Transactions not allowed under Liberalised Remittance Scheme

There are certain transactions which are prohibited under LRS.

1. Bank not eligible to extend facilities: The bank is not allowed to provide any assistance by way of crediting the amount in the capital account of resident India for the purpose of remittance under the present scheme.
2. Remittance not allowed to FATF courtiers: The remittance is not allowed to those countries identified by FATF as non-cooperative countries. Also, the remittance to those banks the terrorist holds is not allowed.

Documents required under Liberalised Remittance Scheme

The resident individual is required to assign an AD bank through which all the remittances shall take place. The PAN of an individual is required under this scheme for all remittances.

Retainment or reinvestment of the Income earned on Investments

This scheme allows the investor to retain or reinvest any income earned on the investment. Any income earned on the investment needs to be repatriated to India within 180 days unless it is reinvested in accordance with reg. 7 FEMA (Realisation, repatriation and surrender of foreign exchange) Regulations, 2015. Provided that any investment by a resident individual has to be done in accordance with the FEMA(Overseas Investment) Rules, 2022 and FEMA(Overseas Investment) Regulations, 2022.

Lending in Indian rupees to NRI or PIO

According to the Liberalised Remittance Scheme, a resident individual may lend to the relative of NRI (Non-Resident Indian) or PIO (Person of Indian Origin) in the following ways:

1. Crossed Cheque
2. Electronic transfer

Utilisation of Loan

The process of lending under Liberalised Remittance scheme is subject to the following conditions:

1. Interest-free loan, and the maturity period of the said loan is one year
2. The loan amount is under the aggregate amount of USD 2, 50,000 during a financial year.
3. The personal requirement of the borrowers is fulfilled.

Non- Utilisation of Loan

The loan shall not be utilised for the following purposes:

1. Nidhi Company
2. Chit fund Business
3. Real estate Business or Construction of Farm houses. The real estate business shall not include the development of roads, bridges, Construction of Residential or commercial premises, or development of townships.
4. Agricultural or plantation activities
5. TDRs (Trading in Transferable Development Rights)

The loan amount is not allowed to remit outside India.

Repayment of loan

Any repayment of such loan shall be made by way of inward remittances. It should be done through:

1. Normal banking Channels
2. Debit to NRO (Non-resident Ordinary), NRI(Non-resident External), FCNR(Foreign Currency Non-resident) of the borrower
3. Sale proceeds of the securities or immovable property are kept as collateral.

Instructions for Authorised Persons under Liberalised Remittance Scheme

The instruction relating to conducting business by an authorised person shall be in accordance with the FEMA, 1999.

1. No documents prescribed: The RBI has not specified any document to be taken from an individual while dealing in the foreign exchanges for current account transactions. However, under Section 10(5) of the Foreign exchange Management Act, 1999, an individual shall deliver any information to the authorised person signifying that the transaction does not contravene the provisions of FEMA or any other rules or regulations.
2. Requirement for branches: The authorised person may ask an individual to deliver any information to meet the requirements of the branches of authorised dealers.
3. Keeping of Records: The AD has to maintain every information or document evidencing the foreign exchange transaction. If an individual refuses to deliver any information to the AD, then his transaction is liable for rejection.
4. No direction to deduction of Tax: The RBI will not issue any directions under the FEMA for the procedure of deduction of tax at source of non-resident while allowing remittances. However, it is required that the AD shall comply with the tax laws requirements.
5. Fulfilment of KYC guidelines: It is required that AD shall make sure that all the guidelines of KYC are followed in respect of the resident individual’s account.
6. Bank account for a period of One year:Before remitting any transaction, it is mandatory that an individual shall maintain a bank account with the bank for a period of one year. If the individual is a new customer, then the AD shall maintain due diligence on the opening and maintenance of the account.
7. Remittance made out of applicant account: The AD shall ensure that his funds should be from the individual’s account. The AD should ensure that the cheque drawn shall be from the individual’s bank account.
8. Remittance to ineligible Entities:The AD should ensure that the remittances shall not be made directly or indirectly to the ineligible entities.
9. Facilitating Credit facilities:The AD bank is not obliged to extend any kind of credit facility to a resident for fulfilling the remittances.
10. Record of FATF countries:The AD bank shall maintain the record of non-cooperative countries identified by the FATF. The record must be updated from time to time to facilitate future transactions.
11. Prior approval for advertisements:Any Indian bank or foreign bank must take prior approval from the RBI before soliciting any advertisements relating to foreign exchange. Further, the marketing done by a foreign bank in India raises supervisory concerns because they do not have operational procedures in India.

Conclusion

The Liberalised Remittance Scheme has enabled the outflow of the Indian rupee abroad. Due to this scheme, stability is maintained between the value of Indian rupees and Foreign Currency. The LRS has simplified the procedure of remittances and limits the amount of foreign exchange. The RBI updates the value of remittance according to the prevailing economic conditions.

Read our Article: Key Features of Liberalised Remittance Scheme