1. Introduction on LRS under the ‘Automatic’ Route
(i) History of the LRS
- The LRS was announced by the RBI vide circular No. 64, dated February 04, 2004 as simplified and liberalized foreign exchange facility to be available for the resident ‘individuals’ (RIs) ‘not’ for HUF, partnership firm and Trusts etc.
(ii) Monetary limit for the LRS under the ‘Automatic’ Route
- RIs including minors are ‘separately’ permitted to remit a maximum USD 2.5 Lac ‘per’ person ‘per’ financial year against permissible current account + Capital account transactions ‘both’ together under the ‘automatic’ route
2. Permitted and ‘Non’-Permitted LRS under the ‘Automatic’ Route
(i) Permitted ‘Capital’ account transactions as investments
- Investments in the Securities and Assets ‘outside’ India for :-
(a)Equity Shares in listed and unlisted ‘both’
(b) Debt instruments
(c) Immovable properties
(d) Acquisition of the ‘qualification’ shares to hold directorship
(e) Acquisition of the shares against professional services rendered
(f) Acquisition of the shares against director remuneration receivables
(g) Investments in the units of the Mutual Funds
(h) Investments in the Ventures capital Funds
(i) Investments in the Promissory Notes
(j) Setting up Wholly Owned Subsidiaries (WOSs) and Joint Ventures (JVs)
(k) Loans in INR to the NRI/PIO as ‘close’ relatives
(l) Opening of foreign currency account ‘outside’ India without approval of the RBI
(m) Investments in the object of arts
(n) Any other ‘notified’ asset by the RBI
(ii) Permitted ‘Current’ account transactions as expenses
- Expenses ‘outside’ India for :-
(a) Private Visit
(b) Gift to close relative as NRI/PIO and donation to a NGO
(c) Employment
(d) Emigration
(e) Maintenance of the ‘close’ relative (as define under the Companies Act, 2013)
(f) Business Visit by the RIs
(g) Medical Treatment
(h) Study
(iii) Prohibited (Not Permitted) LRS
- Investments and expenses ‘outside’ India for :-
(a) Remittance are specifically ‘prohibited’ under the Schedule – I of Foreign Exchange Management (Current Account Transactions) Rules 2000 for :-
(aa) Purchase of the ‘lottery’ tickets or sweep stakes
(ab) Purchase of the ‘proscribed’ magazines etc.
(b) Remittance are specifically ‘restricted’ under the schedule – II of Foreign Exchange Management ( Current Account Transactions) Rules 2000
(c) Remittances for the margins or margin calls to stock exchange
(d) Remittances for the purchase of Foreign Currency Convertible Bonds (FCCBs) in ‘secondary’ market as issued by an Indian company
(e) Remittances for the ‘trading’ in foreign exchange
(ea) Remittances are not permitted to the countries/ territories as identified non- cooperative by Financial Action Task Force (FATF)
(eb) Henceforth direct and indirect ‘both’ remittances are not permitted to the countries or territories as identified by FATF
(fa) Remittances are not permitted to the individuals or entities as identified by the RBI as posing significant risk for committing the acts of terrorism in India
(fb) The RBI is required to advice separately to the banks about such individuals or entities
(fc) Hence direct and indirect ‘both’ remittances to such individuals or entities are not permitted
(iv) Permitted ‘Current’ account transactions ‘beyond’ USD 2.5 Lac under the ‘Automatic’ Route
- Expenses ‘outside’ India for:-
(a)Emigration against incidental expense but ‘not’ for earning points or credits to become and eligible for Immigration
(b) Medical treatment
(c) Studies
- Authorized Dealer (AD) Category -I bank is permitted to allow beyond USD 2.5 Lac based on documents as received from the RIs and also ‘own’ judgment about bonafideness of remittance and also without the RBI approval
(v) LRS under the ‘Approval’ Route
- RIs are permitted to remit under the approval route where remittances are ‘not’ permitted under the ‘automatic’ route.
3. Role of the AD Category-I Bank under the ‘Automatic’ Route
(a) RIs are required to designate AD Category-I bank for remittances under the LRS
(b) RIs are required to maintain bank account for minimum 1 year prior to remittance under the LRS
(c) Banks are required to carry out due diligences for opening, operation and maintenance of account where RIs are ‘not’ maintaining bank account for minimum 1 year prior to remittance under the LRS
(d) (da) Banks are required to review the bank statement for previous year to satisfy regarding ‘source of funds’
(db) Banks are required to obtain latest income tax assessment order where previous 1 year bank statement is also not available
(e) Banks are required to receive an ‘application-cum-declaration’ in form A2 for ‘not prohibited’ purposes
(f) Banks are ‘not’ permitted to provide any kind of ‘credit facility’ for remittance under the LRS
(g) Banks are required to levy the TCS @ 5% where remittances are exceeding Rs. 7 Lac in a financial year
(h) Banks are also permitted to accept the payments through credit, debit or prepaid card beside through the account maintained in bank
(i) Banks are required to satisfy that recipient of the remittance under the LRS is not resident of non-cooperate country/territory as identified by the FATF
(j) Banks are permitted to refuse for the remittance under the LRS where banks are having ‘reason to believes’ that RIs have made any contravention of the FEMA provisions
4. Clarifications on LRS under the ‘Automatic’ Route
(i) Incomes earned on the investments
(a) RIs are permitted to retain and to reinvest outside India against the incomes as earned on investments already made under the LRS
(b) Hence no remittance ‘to’ India is required against incomes as earned on the investments
(c) Moreover these earned incomes are ‘not’ to include in the permitted monetary limit of USD 2.5 Lac
(d) However RIs are required to obey Overseas Direct Investments (ODIs) guidelines for the investments out of abovementioned incomes
(ii) Consolidation for the family members
(a) Consolidation is permitted against the per person monetary limit as applicable for the entire family members.
(b) However consolidated investments are permitted for the family members where asset is jointly owned.
(iii) Purchase of the objects of arts
- RIs are permitted to remit under the LRS for purchase of objects of arts like ‘painting’ etc. within the permissible monetary limit of USD 2.5 Lac and also with in Foreign Trade Policy of Govt. of India for the imports in India
(iv) PAN for the RIs
- RIs are mandatory required to have a PAN for the remittances under the LRS
(v) Private visit to Nepal and Bhutan
(a) RIs are ‘not’ permitted to obtain foreign exchange up to USD 2.5 Lac for visiting to the Nepal and Bhutan
(b) Hence RIs are permitted to obtain foreign exchange for visiting to the ‘other than’ Nepal and Bhutan
(vi) Frequency of the remittances
- RIs are permitted to remit without any restriction on the ‘frequency’ but within monetary limit of USD 2.5 Lac
(vii) Remittance through Demand Draft (DD)
- RIs are permitted to make a request to the banks for issuing DD in his ‘own’ name, name of investee or beneficiary at time of his private visit outside India with in permissible limit of USD 2.5 Lac
(viii) Gift by the RIs
(a) RIs are permitted to remit to give a gift to the ‘close’ relative with in limit of USD 2.5 Lac
(b) RIs are also permitted to give gift in INR to NRI/PIO as ‘close relative’ with in limit of USD 2.5 Lac through transferring to the NRO account or sending a remittance in foreign exchange under the LRS
(ix) Loan in INR (Indian Rupee) to NRI/PIO as close relative
(a) Interest is ‘not’ to be charged. Hence Loan is required as interest free
(b) Minimum maturity period of 1 year is required
(c) Maximum loan amount is not to exceed equivalent to USD 2.5 Lac per financial year
(d) Proceeds of loan should be utilized for meeting the borrower’s personal needs or his/her own business purpose ‘in India’
(e) Loan is ‘not’ permitted for:-
(ea) Chit fund business
(eb) Nidhi Company
(ec) Agricultural or plantation activities
(ed) Real estate business like trading of properties
(ee) Trading in Transferable Development Rights (TDRs)
(ef) Agricultural or Plantation activities or Construction of farm houses
(f) Loan amount is to be deposited in NRO account of the NRI/PIO
(g) Loan amount ‘not’ to be remitted Outside India
(h) ‘Repayment’ of loan is to be made through inward remittances or debit to NRO, NRE or FCNR account
(x) Business Trip under the LRS
(a) Business trip is permitted for the RIs with in limit of USD 2.5 Lac
(b) Business trip is also permitted for the ‘non RIs’ without limit of USD 2.5 Lacs and also ‘without’ using under the LRS
(xi) Currency for the remittances
- RIs are permitted to remit in ‘any’ freely convertible foreign currency. However maximum amount should be equivalent to USD 2.5 Lac
(xii) Not available ‘twicely’ in a year
(a) RIs are ‘not’ permitted to remit under the LRS again in ‘same’ financial year where proceeds of the ‘original’ investments are also ‘brought back to India’
(b) Hence up to USD 2.5 Lac per financial year is permitted ‘one time’ only.
(xiii) Annual Performance Report (APR) for the Investments in JVs/WOs outside India
- RIs are required to file APR based on audited financial statements of the investee company up to 31st December every year against the investments in JVs/WOSs. Hence APR is ‘not’ required where investments are ‘not’ in JVs/WOs.
5. Conclusion on LRS under the ‘Automatic’ Route
(i) RIs are permitted to send the maximum remittances under the LRS upto USD 2.5 Lac per person per financial year. However RIs are permitted to remit ‘beyond’ under the ‘automatic’ route for :
(a) Emigration
(b) Medical treatment
(c) Study
- RIs are required to submit the evidences to the banks where estimated expenses are exceeding USD 2.5 Lac
(ii) RIs are permitted to send the remittances under the LRS for the ‘permitted’ capital and current transactions. Hence ‘not’ permitted for the ‘prohibited’ transactions
(iii) Authorized dealers banks in India are required to do the followings:-
(a) Due diligence of the RIs
(b) Levy the TCS @ 5% where remittances are exceeding Rs. 7 Lac in a financial year
(c) Not to allow any ‘credit facility’ for remittance under the LRS
(iv) RIs are permitted for the followings: –
(i) Reinvestment out of the incomes earned on the investments already made under the LRS
(ii) Gift to the ‘close’ relatives
(iii) Loan to the ‘close’ relatives
(v) LRS under the ‘Approval’ Route
- RIs are permitted to remit under the approval route where remittances are ‘not’ permitted under the ‘automatic’ route.
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Disclaimer
The contents of this presentation are solely for informational purpose. Neither this presentation nor the information contained herein constitutes a contract or will form the basis of a contract. The material contained in this presentation does not constitute/substitute professional advice that may be required before acting on any matter. While every care has been taken in the preparation of this presentation to ensure its accuracy at the time of publication, Satish Agarwal assumes no responsibility for any errors which despite all precautions, may be found herein. In no event shall we be liable for direct or indirect or consequential damages, if any, arising out of or in any way connected with the use of this presentation or the information contained herein.
(Author can be reached at email address satishagarwal307@yahoo.com or on Mobile No. 9811081957)
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