The Liberalized Remittance Scheme: What NRIs Should Know

The Liberalized Remittance Scheme: What NRIs Should Know

Indians sent $18.75 billion abroad through a liberalized remittance scheme (LRS) in Fiscal Year 2020. A massive portion of this record number was money sent to help relatives stranded due to the COVID-19-induced lockdown.

Even in normal times, every year, billions are sent from India to NRIs in the U.S., primarily to support family members who are international students.

Liberalized Remittance Scheme

The RBI introduced the remittance scheme to help families of resident Indians send money abroad. The remittance does not require the government’s prior approval.

In 2015, the RBI increased the annual limit of LRS from the initial $125,000 to $250,000. You can remit as many times as you want in a financial year under LRS, as long you are within the remittance limit.

The central bank amends the regulatory framework from time to time and publishes the changes on its website.

Who Can Remit?

Every resident individual in India, including minors, can remit under LRS. The person should be an Indian resident as per the Foreign Exchange Management Act (FEMA). The person need not be an Indian citizen. The remittance can be made in any freely convertible currencies.

For minors, a legal guardian should countersign Form A2.

Who Cannot Remit?

Corporations, partnership firms, HUF, and trusts cannot remit across borders using LRS.

Where Can I Use the Remittance?

The remittance can be used for current or capital account transactions.

You can use the remittance money in current account transactions for:

  • Medical treatment
  • Education abroad
  • Private visit abroad
  • Emigration
  • Business trip
  • Gift or donation to NRI or Person of Indian Origin (PIO) who is a close relative
  • Leaving India for job
  • Maintenance of close relatives abroad

The capital account transactions permitted under LRS are:

  • Purchasing property abroad
  • Investing abroad in shares, securities, mutual funds, etc.
  • Opening a foreign currency account abroad
  • Setting up wholly-owned subsidiaries or Joint Ventures (JV) abroad
  • Giving loans in Indian rupees to NRIs who are relatives as defined in the Companies Act, 2013

Prohibited Use of Remittance

The Reserve Bank of India prohibits the use of LRS for the following:

  • Margin trading, buying lotteries, etc., in foreign lands
  • Purchasing foreign currency convertible bonds (FCCB) issued by Indian companies abroad
  • Capital Account remittances to countries designated as “Non-cooperative countries and territories” by the Financial Action Task Force (FATF)
  • Remittance to individuals and entities identified as terrorists by the Government of India
  • Foreign exchange trading
  • Cryptocurrency transactions

Is PAN required?

The RBI made PAN mandatory for LRS remittances in 2018. The central bank took the step to ensure that the transferred money was taxed properly.

Form A2

Use Form A2 for LRS remittance. The form has information on the reason for outward remittance, the amount remitted, and the beneficiary’s details. Banks use the information on these forms to certify if the remittance is as per RBI norms.

The final responsibility is with the remitter to check if the remittance conforms to extant RBI regulations.

Repatriation of Interests/Dividend on Deposits/Investments

You can retain and reinvest the income earned from portfolio investments made with the remittances.

Requirements For LRS

The remitter should have maintained an account for at least one year before making the first outward remittance.

Can non-citizens remit more than $250,000?

Non-citizens who have exhausted their remittance limit earned through salary should approach the central bank through their authorized dealer bank for further remittance.

Loans To NRIs

A resident individual can loan to an NRI/PIO who is a close relative. But the RBI has a few conditions for such loans:

  • The loan should be interest-free and should mature within a year.
  • The loan amount should be within the LRS limit of $250,000.
  • NRIs/PIOs should use the loan for personal or self-owned business purposes.
  • The NRI should not use the loan for:
    • Trading in Transferable Development Rights
    • Chit fund business
    • Nidhi Company
    • Real estate business, farmhouse construction, or plantation or agricultural activities

Good to Know

  • A resident in India, according to FEMA, is one who has been living in India for more than 182 days in a financial year.
  • For the list of designated “close relatives” according to the Company’s Act 2013, please visit the RBI website.
  • For outward remittance from an NRO account, all the documents should be self-attested.
  • For most banks, the exchange rate is valid for two working days.
  • Remittance transactions are valid for 15 days from the date of initiation.

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