Over the past five years India has become not only the world’s second-largest sending market – after only China – but also one of the fastest-growing sources of outbound students.

Now, there are many provisions of FEMA which is applicable to students going abroad such as their Residential status, Remittance facilities, Educational loans to make payment abroad to universities etc. In this outlook we shall look that into and try to solve as many queries.

♦ First question that students going abroad ask what is their residential status under FEMA as opposed to Income Tax Act, 1961. So, we shall look into the FEMA provisions with regard to this?

Person resident in India means the following [section 2(v) of FEMA:

  • A person residing in India for more than 182 days during the course of preceding financial year. However, it does not include a person who has gone out of India or who stays outside India for employment outside India or carrying on business or vocation outside India or for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period.
  • A person residing in India for more than 182 days during the course of preceding financial year. However, it does not include a person who has come to or stays in India, in either case, otherwise than

(a) He has come for or taking employment in India

(b) For carrying on business or vocation in India

(c) For any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period.

Now students often go outside to pursue their courses for a fixed period such as 2 year etc which does not indicate their intention to stay outside India for a permanent period. So they are treated as a residents under FEMA which is creating a lot of wreck for students as they are not able to pursue the facilities as under FEMA.

So. Government has interfere in such a situation and come with press release ass follows.

“ The Reserve Bank of India has been receiving representations from Indian students

studying abroad requesting that they may be treated as non-residents under FEMA. The purport of their argument is that though they are students, they are, in reality, not dependent for a dominant part of their expenses on remittances from their households in India.

Often they are permitted to work and have to undertake certain related financial transactions. They urge, therefore, that the definition needs to be revised. Taking into account the definition of resident under FEMA and the intention of the student to stay abroad for uncertain period though not for permanent settlement, it has been decided to treat them henceforth as non-residents from the FEMA angle.

As non-residents, students will, in any case, be eligible for receiving remittances from India, as follows : (i) up to USD 100,000 from close relatives from India on self-declaration towards maintenance, which could include remittances towards their studies also, (ii) up to USD 1 million out of sale proceeds/balances in their account maintained with an AD in India, (iii) all other facilities available for NRIs under FEMA, (iv) educational and other loans which were availed (as residents in India) by students would be allowed to continue. It is also clarified that these instructions do not dilute in any way the utilisation of the existing foreign exchange remittance facilities to students in regard to their academic pursuits.”

So now students going abroad will be treated as non residents from the date they go out of India.

♦ Second question is that whether they can avail educational loans in India and make their all necessary payments under LRS?

Liberalised Remittance Scheme (LRS) was introduced by Reserve Bank of India (RBI) vide A.P. (DIR Series) Circular No. 64 in 2004 as liberalization measure to facilitate resident individuals to remit funds outside India.

Remittance under LRS should be out of remitter’s own funds and not borrowed funds. Further, banks cannot extend any kind of credit facilities to RI to facilitate capital account remittances under LRS.

Therefore technically they cannot avail educational loans for the payments. However many persons and banks are advertising about educational loans despite fact that it is not allowed under FEMA. However ironically the RBI is also not strict in such a situation and there are not compounding cases in this, hence you can do that.

 Contact: bklegaladvisors@gmail.com

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