Clarification - Increase in the
limit from USD 75,000 to USD 125,000 for resident individuals under Liberalized
Remittance Scheme (LRS) {Notification No. "RBI/2014-15/132 A.P. (DIR
Series) Circular No.5 dated 17th July, 2014}
Before going into the revision made in Liberalized Remittance
Scheme, let us know what it is actually?
The Reserve Bank of India had announced a Liberalized
Remittance Scheme (the Scheme) as per the powers conferred on it under FEMA
Act, 1999 in February 2004 as a step towards further simplification and
liberalization of the foreign exchange facilities available to resident
individuals. Under the Liberalized Remittance Scheme, all resident individuals,
including minors, are allowed to freely remit up to USD 125,000 per financial
year (April – March) for any permissible current or capital account transaction
or a combination of both. Under the Scheme, resident individuals can acquire
and hold shares or debt instruments or any other assets including property
outside India, without prior approval of the Reserve Bank. Individuals can also
open, maintain and hold foreign currency accounts with banks outside India for
carrying out transactions permitted under the Scheme. It is mandatory to have
PAN number to make remittances under the Scheme. The remittances can be made in
any freely convertible foreign currency equivalent to USD 125,000 in a
financial year. This is a big blow which will encourage investments outside
India which has been taken after longtime, as several restrictions have been
imposed on the outflow of capital outside India when the rupee plummeted last
year. It is pertinent to note that the CAD of India was 4.7% of GDP, which has
nosedived to 0.2% of CAD during Q4 of FY14.
However, the aforesaid scheme is not applicable on t
he
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;
§ Remittances directly or indirectly to Bhutan, Nepal, Mauritius and
Pakistan;
§ Remittances directly or indirectly to countries identified by the
Financial Action Task Force (FATF) as “non co-operative 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.
The facility under the Scheme is in addition to those already
available for private travel, business travel, studies, medical treatment,
etc., as described in Schedule III of Foreign Exchange Management (Current
Account Transactions) Rules, 2000. The Scheme can also be used for these
purposes. However, remittances for gift and donation cannot be made separately
and are subsumed under the limit available under this LRS. Accordingly,
resident individuals can remit towards gifts and donations up to USD 125,000
per financial year under the Scheme.
The remittance under the Scheme is in addition to acquisition
of ESOPs linked to ADR/ GDR. The remittance under the Scheme is in addition to
acquisition of qualification shares. A resident individual can invest in units
of Mutual Funds, Venture Funds, unrated debt securities, promissory notes, etc.
under this Scheme. Further, the resident can invest in such securities through
the bank account opened abroad for the purpose under the Scheme. In terms of
the extant FEMA provisions LRS can be used to acquire both listed and unlisted
shares of an overseas company. There is no restriction on the frequency.
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 125,000. Once a remittance is made for an amount up to
USD 125,000 during the financial year, he would not be eligible to make any
further remittances under this scheme, even if the proceeds of the investments
have been brought back into the country. With effect from August 05, 2013, this
Scheme, can be used by Resident individuals to set up Joint Ventures (JV)/
Wholly Owned Subsidiaries (WOS) outside India for bonafides business activities
within the limit of USD 125,000 subject to the terms & conditions
stipulated in FEMA Notification No.263
As per the Scheme, resident individuals may remit up to USD
125,000 per financial year for any permitted capital and current account
transactions or a combination of both. It was decided vide A.P.(DIR Series) Circular No. 138 dated
June 3, 2014, to increase the limit to USD 125,000 per financial year
(April-March) from USD 75,000. In this regards, it has been clarified that this
Scheme can now be used for acquisition of immovable property outside India.
Aditya
Singhania & Nischal Agarwal
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