Understanding Liberalised Remittance Scheme (LRS) in FAQ form
1. What is the Liberalised Remittance Scheme (LRS) of USD 2,50,000 ?
Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both. RBI announced a scheme for various purposes vide its A.P (DIR Series) Circular No.64 dated 04/02/2004.
LRS facility is not available to HUF, Partnership Firm, Trust, Society, Association of Person, Body of Individuals, LLP, Company, Etc.
Further, resident individuals can avail of foreign exchange facility for the purposes mentioned in Para 1 of Schedule III of FEM (CAT) Amendment Rules 2015, dated May 26, 2015, within the limit of USD 2,50,000 only.
The Scheme was introduced on February 4, 2004, with a limit of USD 25,000. The LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions.
In case of remitter being a minor, the LRS declaration form must be countersigned by the minor’s natural guardian. The Scheme is not available to corporates, partnership firms, HUF, Trusts etc.
Current & Capital Account Transactions permitted under LRS :
2. What are the prohibited items under the Scheme?
The remittance facility under the Scheme is not available for the following:
Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery tickets/sweep stakes, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000.
Remittance from India for margins or margin calls to overseas exchanges / overseas counterparty.
Remittances for purchase of FCCBs issued by Indian companies in the overseas secondary market.
Remittance for trading in foreign exchange abroad.
Capital account remittances, directly or indirectly, to countries identified by the Financial Action Task Force (FATF) as “non- cooperative countries and territories”, from time to time.
Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.
3. Under LRS are resident individuals required to repatriate the accrued interest/dividend on deposits/investments abroad, over and above the principal amount?
No, the investor can retain and reinvest the income earned from portfolio investments made under the Scheme.
4. Can remittances under the LRS facility be consolidated in respect of family members?
Remittances under the facility can be consolidated in respect of close family members subject to the individual family members complying with the terms and conditions of the Scheme. However, clubbing is not permitted by other family members for capital account transactions such as opening a bank account/investment/purchase of property, if they are not the co-owners/co-partners of the investment/property/overseas bank account. Further, a resident cannot gift to another resident, in foreign currency, for the credit of the latter’s foreign currency account held abroad under LRS.
5. Are there any restrictions on the frequency of the remittance?
There are no restrictions on the frequency of remittances under LRS. However, the total amount of foreign exchange purchased from or remitted through, all sources in India during a financial year should be within the cumulative limit of USD 2,50,000.
6. Are there any restrictions towards remittances to particular country under LRS?
Remittances directly or indirectly to countries identified by the Financial Action Task Force (FATF) as “non- cooperative countries and territories”, from time to time; and remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks are not permissible.
7. Can remittances be made only in US Dollars?
The remittances can be made in any freely convertible foreign currency.
8. Whether credit facilities (fund or non-fund based) in Indian Rupees or foreign currency can be extended by AD banks to resident individuals?
LRS does not envisage extension of fund and non-fund based facilities by the AD banks to their resident individual customers to facilitate remittances for capital account transactions under LRS.
However, AD banks may extend fund and non-fund based facilities to resident individuals to facilitate current account remittances under the Scheme.
9. Can a resident individual make a rupee loan to a NRI/PIO who is a close relative of resident individual, by of crossed cheque/ electronic transfer?
A resident individual is permitted to make a rupee loan to a NRI/PIO who is a close relative of the resident individual (‘relative’ as defined in Section 2(77) of the Companies Act, 2013) by way of crossed cheque/ electronic transfer subject to the following conditions:
The loan is free of interest and the minimum maturity of the loan is one year.
The loan amount should be within the overall LRS limit of USD 2,50,000, per financial year, available to the resident individual. It would be the responsibility of the lender to ensure that the amount of loan is within the LRS limit of USD 2,50,000 during the financial year.
The loan shall be utilised for meeting the borrower's personal requirements or for his own business purposes in India.
The loan shall not be utilised, either singly or in association with other person, for any of the activities in which investment by persons resident outside India is prohibited, namely;
the business of chit fund, or
Nidhi Company, or
agricultural or plantation activities or in real estate business, or construction of farmhouses, or
trading in Transferable Development Rights (TDRs).
Explanation: For the purpose of item (c) above, real estate business shall not include development of townships, construction of residential / commercial premises, roads or bridges.
5. The loan amount should be credited to the NRO a/c of the NRI /PIO. Credit of such loan amount may be treated as an eligible credit to NRO a/c.
6. The loan amount shall not be remitted outside India.
7. Repayment of loan shall be made by way of inward remittances through normal banking channels or by debit to the Non-resident Ordinary (NRO)/ Non-resident External (NRE) / Foreign Currency Non-resident (FCNR) account of the borrower or out of the sale proceeds of the shares or securities or immovable property against which such loan was granted.
10. Exception to LRS:
· In case of Medical treatment, overseas education and Emigration, one can remit more than USD 250000 per financial year without approval of RBI by producing certain documents if Authorized dealer is satisfied with the documents.
· In case of Students going abroad one need not provide estimate for remitting up to USD 250000 per financial year, if Authorized dealer may allow remittance exceeding USD 250000 based on estimate cost from foreign university then approval from RBI is not required.