As a resident Indian, you may want to remit money abroad to children for their education expenses or you may want to remit money for maintenance of a close relative abroad. You may need foreign exchange for a private or a business trip or medical treatment abroad. What do you do?
Well, you can purchase foreign exchange from an Authorized Dealer banks, money changers, entities such as Thomas Cook and Cox & Kings and select NBFCs. Reserve Bank has eased the rules for purchase of foreign exchange by residents for permissible transactions. You do not require approval from the Reserve Bank for purchasing foreign exchange up to a certain limit.
You can use Liberalised Remittance Scheme (LRS) for purchasing or remitting foreign currency up to USD 250,000 for permissible transactions.
What is Liberalised Remittance Scheme (LRS)? What are the permitted transactions under LRS? What are the documents required to make remittance or purchase foreign currency? How do I make the payment? What if I need to remit more in specific cases? In this post, I will try to answer these questions.
Liberalised Remittance Scheme (LRS)
Under LRS, residents are allowed to remit up to USD 250,000 per financial year for permissible capital and current account transactions (or a combination of both). Only resident individuals (including minors) are permitted to remit funds abroad under LRS. In case of minors, the LRS declaration form shall be countersigned by the guardian.
For remittances under LRS, approval from the Reserve Bank is not required.
Non-residents cannot remit funds abroad under LRS.
It is not that Non-residents cannot remit funds abroad. It is just that they cannot remit under Liberalised Remittance Scheme (LRS).
Read: Remittance Facilities for NRIs
There is no restriction on frequency of transactions under LRS. However, the total amount of foreign exchange purchased or remitted should not exceed USD 250,000 or its equivalent in the financial year.
Current Account Transactions permitted under LRS
- Private Visits to any country (except Bhutan and Nepal)
- Gifts or donation
- Going abroad for employment
- Emigration
- Maintenance of close relatives abroad. Relative as per Section 6 of the Companies Act
- Business Trip
- Medical Treatment abroad
- Education abroad
- Any other permissible current account transaction as per FEMA.
Capital Account Transactions permitted under LRS
- Opening a foreign currency bank account abroad
- Transferring money to own foreign currency accounts abroad
- Purchasing property abroad
- Making investments abroad
- Purchasing object of Art subject to provisions of extant Foreign Trade Policy
- Loans and gifts in Indian Rupees to NRI/PIO close relatives
- Repayment of a loan abroad availed while you were a non-resident
Points to Note for LRS
Banks are not permitted to offer any kind of credit facilities to facilitate Capital Account remittances under LRS.
For capital account remittances, you must have maintained the bank account with the bank for at least one year before making such remittance. There is no such restriction for current account remittances.
You need to designate a branch of the Authorized dealer through which all the remittances under the Scheme will be made.
Please understand the limit of USD 250,000 is the overall cap for remittance/purchase of foreign currency for all current and capital account transactions listed above. For instance, if you remit/draw USD 100,000 for making investment abroad, the limit under LRS would be reduced by USD 100,000 for the financial year i.e. you can remit only up to USD 150,000 more(in the same financial year) for any permitted transaction.
If you breach the limit of USD 250,000 for the financial year, you will need approval from the Reserve Bank for further purchase of foreign exchange/remittances.
There is an exception to the rule in case of medical treatment, overseas education and emigration. In these cases, you can still remit more than USD 250,000 without approval from RBI if you produce certain documents. If the Authorized Dealer is satisfied with the documents, it can let you remit more than USD 250,000 without approval from RBI. Case of medical treatment and overseas education is discussed later in the post.
Even drawal of foreign exchange (currency notes) for purposes mentioned above is subsumed under LRS. Hence, if you draw USD 4,000 for a private visit, the limit under LRS goes reduced by USD 4,000 for the financial year.
Medical Treatment Abroad
This limit for this head is also subsumed under LRS.
You can remit up to USD 250,000 or its equivalent without any estimate from the doctor.
If the amount exceeds USD 250,000, you need to furnish cost estimate from a doctor or hospital in India or abroad. RBI approval is not required in this case. However, Authorized dealer bank must be satisfied with the documents presented.
So, remittance restrictions won’t hamper the quality of medical treatment you can afford abroad.
The person who is accompanying the patient as an attendant is also allowed to remit up to USD 250,000 per financial year.
Students going abroad
The remittance under this head is also subsumed under LRS.
Like with medical treatment, you do not need to provide any estimate for remitting up to USD 250,000 per financial year. However, Authorized dealer (bank or institution) may allow remittance exceeding USD 250,000 based on cost estimate from foreign university. RBI approval is not required in such case.
Point to Note: As per FEMA, students are considered NRIs from the day one (of moving abroad for studies). Hence, they can make use of all the remittance facilities available to NRI. They can remit up to USD 1 million from their NRO accounts per financial year.
Loan/Gift to NRI/PIO close relative under LRS
As a resident, you are allowed to offer Rupee loans to NRI/PIO close relatives subject to certain conditions.
- The loan should be free of interest and the minimum tenor should be 1 year.
- The loan amount shall be credited to NRO account of the NRI/PIO close relative.
- The loan amount shall not be remitted outside India.
- The loan amount shall be utilized for borrower’s personal requirements or business in India.
- The loan amount cannot be invested in chit funds, Nidhi Company, agricultural or plantations activities, real estate business (with exceptions) or used for construction of farm houses or trading in TDRs.
- Repayment of the loan shall be made through inward remittances or through debit to NRO, NRE or FCNR accounts or out of sale of security against which such loan was granted.
Please note the rupee loan amount shall be considered under LRS and your LRS limit for the financial year will go down by the loan amount. Therefore, the cap of USD 250,000 per financial year under LRS applies to such loans too.
Close relative is Relative as per Section 6 of the Companies Act. Relative includes parents, grandparents, siblings and their spouses, children and their spouses and grandchildren and their spouses.
Gift in Indian Rupees or Foreign Currency to non-resident close relatives is also subsumed under LRS.
Do note you (resident Indian) cannot gift, in Foreign Currency, to another resident for crediting the latter’s foreign currency account opened under LRS.
What you cannot do under LRS?
You cannot remit money under LRS for purposes:
- Prohibited under Schedule I (remittance out of lottery winnings, income from racing/riding, or for purchase of lottery tickets etc.) of FEM (Current Account Transaction Rules), 2000.
- Restricted under Schedule III (cultural tours, advertisement in foreign print media etc) of FEM (Current Account Transaction Rules), 2000.
- Capital Account Remittances to countries identified by Financial Action Task Force (FATF) as non-cooperative countries and territories.
- Remittance for margin/margin calls to overseas exchange/overseas counterparty
- Remittance for purchase of Foreign Currency Convertible Bonds (FCCBs) issued by Indian companies in the overseas secondary market
- Remittance for trading in foreign exchange abroad
- Remittances to individuals and entities identified by RBI as posing significant risk of terrorist activities
Income Tax Act and FEMA
Your remittances to non-residents abroad will be governed by FEMA (Foreign Exchange Management Act). Additionally, the authorized dealer banks need to ensure that your remittance is in compliance with the Income Tax laws i.e. tax has been duly paid on the funds being remitted and TDS, if any has been deducted.
RBI does not issue any instructions under FEMA about the procedure to follow to ensure income tax compliance. As per Rule 37BB of the Income Tax Act, you may have to furnish a declaration under Form 15 CA and a CA certificate under Form 15 CB. CA certificate is to ensure that appropriate TDS has been deducted for the proposed payment/remittance.
Book: In the Wonderland of Investments for NRIs by A.N.Shanbhag/Sandeep Shanbhag
Documents required to remit money abroad
For remittances abroad, you might be required to furnish information in the four forms:
- Form A2 (Required as per FEMA)
- Application cum Declaration for purchase of foreign exchange under LRS (Required as per FEMA)
- Form 15 CA (Required as per Income Tax Act)
- Form 15 CB (Required as per Income Tax Act)
Submission of Form 15 CA and Form 15 CB is not required in certain cases (as specified in Rule 37BB).
As I understand, rule 37BB exempts submission of Form 15CA or Form 15CB for current account transactions under LRS. This becomes applicable from April 1, 2016.
It is mandatory to furnish Permanent Account Number (PAN) to make remittance under LRS.
There is an exception.
For remittances up to USD 25,000 for all permissible current account transactions, you only need to provide a simple letter to the bank containing your name and address (and of the beneficiary) and the purpose of remittance. However, for such cases, the payment for purchase of foreign exchange shall be made through direct debit to your bank account or through a cheque or a demand draft. For remittances under USD 25,000, the Authorized dealer may not insist on PAN.
For higher sums, you need to furnish Form A2 and Application cum Declaration under LRS and Form 15 CA and 15CB, if applicable.
The documents may vary based on the purpose of remittance. Please refer to the document list required for remittances for various purposes on ICICI Bank website.
Do note, in reality, Authorized Dealers may even insist on extra documents (say Form 15 CA and 15 CB for current account transactions) to be on the safer side.
What role do Authorized Dealers play?
Authorized dealers are persons/entities that have been authorized by the Reserve Bank to deal in foreign exchange. Almost all prominent banks figure in the list.
Remittances under LRS do not require RBI approval. RBI has delegated the power to Authorized dealers. Authorized dealer (banks or entities such as Thomas Cook) has to satisfy itself that the remittance/drawal of foreign currency is not in contravention of FEMA or Income Tax Act.
For compliance with FEMA, it may rely on Form A2 and declaration under LRS.
For compliance with Income Tax Act, it will rely on Form 15 CA and Form 15 CB, if required.
Apart from this, it must also follow KYC guidelines and anti-money laundering rules before effecting the remittance.
How do I pay for purchase of foreign currency?
The Authorized Dealer has to ensure that the payment for purchase of foreign exchange is being made out of funds belonging to the remitter.
Therefore, payment for purchase of foreign exchange must be made by cheque/demand draft/ debit card/ credit card/pay order/net banking.
There is a minor exception.
You can make cash payment for amount not exceeding Rs 50,000 for purchase of foreign currency for travel abroad (for private visit or any other purpose).
Returning NRIs
Once you have returned to India permanently, restrictions that apply to residents will apply to you too. So, you can also make use of Liberalised Remittance Scheme for purchase of foreign exchange.
If you are returning to India permanently, you can keep your money repatriable by transferring money in FCNR and NRE deposits/accounts to RFC account. Money in RFC account remains fully repatriable and you can use it for remittances abroad. Remittances from RFC accounts are not considered under LRS. Hence, you can easily remit as much as you want.
Read: Returning NRIs: What happens to your bank accounts?
How do I send money abroad?
I had read an excellent article in LiveMint titled Best routes to send Money abroad. It covers the various ways to send money abroad. Recommend you to go through this Mint article.
Disclaimer: This is a very simplistic representation of FEMA and the Income Tax Act. You must not base your decisions solely on the information provided in this post.
Additional Read:
RBI Master Circular for Miscellaneous Remittances from India: Facilities for Residents
FEMA Current Account Transaction Rules, 2000
FEM (Current Account Transactions), Amendment Rules, 2015
FAQs on Liberalised Remittance Scheme on RBI Website
Book: In the Wonderland of Investments for NRIs by A.N.Shanbhag/Sandeep Shanbhag
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