The RBI’s Liberalized Remittance Scheme (LRS) will be your one-stop shop for all your foreign exchange concerns, whether you’re thinking about investing abroad, travelling abroad, or even sending your kids to school abroad. As the name implies, LRS is all about the remittances (investing overseas) that a resident person is permitted to make. On the other hand, in addition to remittances, one can also use the foreign exchange facility (for medical expenses or while travelling), which is also covered by LRS.
Here are 5 things to know about Rupee-dollar before investing or sending money abroad under the RBI’s Liberalised Remittance Scheme.
1. Buying dollars in India
To invest or spend abroad, one must first convert Indian rupees into US dollars for any international transaction. Such transactions are subject to the Liberalized Remittance Scheme’s regulations (LRS). Simply said, if you live in India, you must purchase dollars from an authorized dealer (the bank) using Indian rupees (INR). The money can then be used to buy the property or other assets like equity shares by sending it abroad or spending it there.
2. Maximum dollars that you can remit abroad
Any resident person, even a juvenile (countersigned by a guardian), is currently permitted to remit up to 2.5 lakh US dollars (USD 2,50,000) in any financial year under the LRS guidelines. It is equivalent to roughly Rs 2,00,000 or Rs 2 crore at the current exchange rate of Rs 80 to $1. The number of transactions allowed each year is not limited. The restriction applies to each financial year, so even if someone returns the remitted amount within the same year, they won’t be able to send any more money. The regulations make it quite clear that one can only send foreign exchange (FX) for permitted capital account transactions, current account transactions, or a combination of both.
3. Dollars allowed to carry abroad
If you are going on an international trip with the family, the ‘foreign exchange facility’ will determine whether you will be allowed to carry dollars. The person is required to keep their currency usage to a maximum of USD 2,50,000. If you are making a private visit to any country except Nepal and Bhutan, you can use your credit card on spending and ATM cash withdrawals if the card allows international transactions.
If you are traveling for business or attending a conference or specialized training abroad.
If you need forex for meeting expenses for meeting medical expenses, or check-up abroad, or accompanying as an attendant to a patient going abroad for medical treatment/ check-up.
If you need to meet expenses in connection with medical treatment abroad
If you need forex for meeting the cost of education/studies abroad
If you wish to gift or make a donation abroad
If you are going abroad for employment
If it is for the purpose of Emigration
All these transactions will be considered current account transactions and provided the transactions do not come under the prohibited list, the Authorised Dealer (the bank) may also carry out the remittance without the RBI’s consent.
4. Buying US stocks, opening a foreign bank account
The LRS regulations will classify any investments you make in stocks, real estate, or other assets abroad as capital account transactions. According to LRS regulations, only specific capital account transactions are permitted. Some of them are:
If you wish to open a bank account abroad i.e. a Foreign Currency Account
If you wish to purchase real estate property overseas
For making investments overseas which includes investing in shares, mutual funds, debt instruments amongst others.
Setting up Wholly Owned Subsidiaries and Joint Ventures outside India for business operations.
5. Income, dividends earned abroad
The LRS laws permit an investor to keep and reinvest income received in the foreign country if they have made investments in shares and mutual fund schemes there (as long as it is not an offshore direct investment). The investor is not required to bring back any accrued interest or dividends from foreign savings and investments.