An useful note on Liberalised Remittance Scheme
The Reserve Bank of India which is a regulatory Authority for the financial affairs of the country also acts as a regulatory Authority for Foreign Exchange transactions. For this purpose, the Foreign Exchange Management Act (FEMA) was introduced in 1999 which prescribes the rules and regulations to be followed when dealing in Foreign Exchange.
The FED of Reserve Bank regularly comes out with circulars and notifications, out of which the rule of Liberalised Remittance Scheme is discussed below.
Often referred as LRS under common terminology. As the name suggests the scheme is all about liberalising the monetary limits for remittances of foreign exchange abroad.
The scheme dates back far in 2004, when the limit for remittance was 25000 USD until recently increased to 2,50,000 USD per financial year which has increased ten times as compared in past years.
Remittance basically means transfer of funds. In this context this is remittance of money by an individual from one country to another country. This involves a process of converting the currency of one country into currency of other country. This is where the role of Money Changer/Authorised Dealers comes into picture for making available these facilities to individuals.
The scheme is applicable only to Indian Resident Individuals. However, this is not applicable in case corporates, partnership firms, HUF, Trusts, etc.
In this Scheme the permissible transactions are Current Account transactions and Capital Account Transactions.
Basic difference between the current account transaction and Capital Account Transaction is there is a creation of asset abroad in case of Capital Account transactions, there is no creation of asset in Current account transactions.
Examples for current account transactions:
- Remittance for private travel
- Education abroad
- Medical Treatment
- Going abroad for employment
- Maintenance of close relatives abroad. Etc.,
Examples for Capital Account transactions:
- Opening of Bank Account Abroad
- Purchase of property abroad
- Making investments abroad
- Setting up Wholly owned Subsidiaries abroad
- Extending loans to NRI relatives in Indian Rupees.
Maximum Limits and Modes:
his limit of USD 2,50,000 subsumes both current and capital account transactions. That means the total limit available to an individual in a financial year is USD 2,50,000 which includes all types of current/capital account transactions. These transactions made can be in any mode like
- Foreign currency
- Foreign Currency Card
- Travellers Cheque
- Demand Draft
- The above are collectively called as Foreign Exchange
This scheme cannot be used for remittance out of lottery winnings, income from race/riding, payment of commission on exports, remittance of dividend, payment of interest on amount in NRO account which are prohibited purposes.
As this scheme is only for residents of India, only residents can avail the foreign exchange. NRI’s or Foreigners cannot avail Foreign Exchange under LRS. However, there is exception to the rule
A person resident in India means a person who stays in India for more than 182 days during preceding financial year, however it does not include a person who has gone out of India for employment, business, vocation, or any other purpose for an uncertain period.
Similarly, if an NRI or Foreigner has come into India permanently for employment, business, vocation, or any other purpose for an uncertain period and stays in India for 182 days or more he can avail Foreign Exchange only on submitting the documents supporting his stay in India.
In order to avail the facility, the individual has to follow a very simple procedure on documentation. That is to fill in a simple application form, Form A2, PAN Card and few other relevant documentations based on the purpose for which the remittance is made.
Note: PAN Card is made mandatory for resident individual for making any Foreign Exchange transaction with effect from June 2018.
The resident individual can pay Indian Rupee and obtain Foreign Currency. In case the transaction value is less than 49999 then the amount can be paid in cash.
In case of transaction of value more than 49999 the payment has to be compulsorily made in cheque/RTGS/NEFT or any other online payment mode.
The money has to be transferred by the individual from his savings account.
Following these simple basic rules will make your foreign exchange transaction hassle free in India through Orient Exchange , one of the leading Authorised Dealer – II in India, and the best platform for Money Exchange and Remittance.