Under the Liberalized Remittance Scheme (LRS), a resident individual can remit USD 2,50,000/- in a financial year for permitted current and capital account transactions, as per the Master Direction No. 7/2015-16. The salient features of the LRS are enumerated below:
1. LRS is available only to Resident Individuals including minor. It is not available to corporates, partnership firms, HUF, Trust etc.
2. Permitted Capital Account transactions are :
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- Opening of foreign currency account abroad with a bank
- Acquisition of immovable property abroad
- ODI/OPI as per the relevant Rules
- Extending loans in Indian rupees to his/her relative NRIs.
3. The LSR limit subsumes the current account transactions for private visit, gift/donation to anyone, going abroad for employment, emigration, maintenance of relatives, business trips, medical treatment abroad, studies abroad, as per Para I of Schedule III to Foreign Exchange Management (Current Account Transaction) Rules, 2015, also for purchasing object of art as per Foreign Trade Policy.
4. Bank shall not extend any kind of credit facilities to facilitate capital account transactions.
5. The LRS can be used only for those permitted transactions allowed under FEMA. No remittance can be made for margin or margin calls to overseas exchanges/overseas counter party.
Operational Instructions to authorized persons:
1. No specific documents are prescribed by RBI, banks should comply with section10(5) of FEMA.
2. AD Banks may set branch specific document requirements.
3. Bank to maintain records for transactions and report suspicious activities to RBI.
4. Bank to ensure compliance with income tax TDS, KYC norms, and AML Rules.
5. Applicant must be bank customer for minimum period of one year.
6. No credit facilities for residents for capital transactions.
7. No remittances to FATF non-cooperative countries/entities.
8. Report transactions in FETERS, AD must also prepare dummy form A2 for remittances<USD 2,50,000.
9. Without seeking permission from RBI, no foreign and Indian banks shall advertise about LRS.
10. Investment in IFSC: Resident Individuals are allowed to make remittance in IFSC for making investment in securities of IFSC entities.
11. For studies abroad for payment of fees to foreign universities or foreign institutions in IFSC for pursuing specified courses.
Recent Amendment in LRS in December, 2023:
1. Investor can reinvest the income earned on investments made from LRS.
2. All received/realized/unspent/unused foreign exchange, if not invested, shall be repatriated, and surrendered to the Authorized Person within 180 days from the date of receipt/realization/purchase/acquisition or date of return to India, in accordance with FEM (Realization, Repatriation and Surrender of Foreign Exchange) Regulations, 2015.
Consequences of Recent Amendment:
1. International Banks require higher minimum balance than the LRS limit. If the LRS amount is brought back within 180 days, the bank accounts will be closed.
2. It is not clear whether investment in unlisted debt securities are allowed under LRS. Further, there is no clarity whether Fixed Deposit is included under this limit.
3. In case the individual is not able to brink back unused foreign exchange with 180 days, then the compounding proceedings can be initiated under FEMA.
4. Under Section 13 (1) of FEMA, the person shall be liable to a penalty upto three (3) times the sum involved and further penalty of Rs. 5000/- every day after contravention.
5. There is another possibility of ED issuing the notice for contravention of Section 3(a) of FEMA, as any such contravention may be construed as retention of assets abroad.
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In case you have any concern and queries or need any support in compliance of FEMA you may like to contact us.
Abhinarayan Mishra, FCA, FCS; Managing Partner, KPAM & Associates, Chartered Accountants, Dwarka, New Delhi; 9910744992, [email protected]
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