Before making an international transaction, one needs to convert the Indian Rupee into Dollars for the purpose of investing or spending abroad.
Whether you are considering to invest abroad, go on an international vacation or even send your children for studies abroad, the RBI’s Liberalised Remittance Scheme (LRS) will be the one-single stop for all your concerns related to foreign exchange. As the name suggests, LRS is all about the remittances (investing abroad) that a resident individual is allowed to make. However, in addition to remittances, one can also avail foreign exchange facility (medical expense or while travelling) which also comes under the purview of LRS.
Here are 5 key facts about the RBI’s Liberalised Remittance Scheme.
1. LRS and international transactions
Before making an international transaction, one needs to convert the Indian Rupee into Dollars for the purpose of investing or spending abroad. The rules governing such transactions come under the ambit of Liberalised Remittance Scheme (LRS). Simply put, as an Indian resident, you need to buy dollars using the Indian rupees (INR) from an authorised dealer (the bank) in India. The dollars can then be spent or remitted abroad for acquiring property or other assets such as equity shares. Here, the mention of the dollar as a currency is for the representational purpose as remittance can be in any freely convertible foreign currency other than dollars.
2. LRS limits
Currently, under the LRS rules, any resident individual including a minor (countersigned by a guardian) is allowed to remit up to 2.5 lakh US dollars (USD 2,50,000) in each financial year. At an exchange rate of Rs 76 to a dollar, it is about Rs 1,90,00,000 or Rs 1.90 crore. There is no restriction on the frequency of transactions in a year. Even if one brings the remitted amount back in the same year, no further remittance will be allowed as the limit pertains to each financial year. The rules clearly mention that one can remit foreign exchange (forex ) only for any permissible current account transactions or capital account transactions or a combination of both.
3. LRS – Current account transactions
If you are going on an international trip with the family, the foreign exchange facility will determine if it is allowed. In addition to remittance, the availability of forex facility is there with resident individuals for specific purposes. These are mentioned in Para 1 of Schedule III of FEM (CAT) Amendment Rules 2015, dated May 26, 2015. The individual has to maintain the usage of forex within the limit of USD 2,50,000 only. Some of them are as below:
- If you are making a private visit to any country except Nepal and Bhutan. It could be an international vacation. You can use your credit card on spends and ATM cash withdrawals if the card allows international transactions.
- If you are traveling for business, or attending a conference or specialised training abroad.
- If you need forex for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as 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 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 of the above transactions will fall under current account transactions and the Authorised Dealer (the bank) in addition may undertake the remittance without RBI’s permission if the transactions do not fall in the prohibited list. However, the person remitting the funds has to bear the responsibility to comply with the FEMA rules/regulations. One has to also comply with the ‘Know Your Customer’ guidelines and the Anti-Money Laundering Rules while making any of the current account transactions.
4. LRS – Capital account transactions
- If you wish to invest abroad in shares, property etc, the LRS rules will define them as capital account transactions. Only certain capital account transactions are allowed under LRS rules. 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, among others.
- Setting up Wholly Owned Subsidiaries and Joint Ventures outside India for business operations.
5. Repatriation of funds
If someone has invested across shares and mutual fund schemes abroad, the LRS rules allow the investor (unless it is overseas direct investment) to retain and reinvest the income earned in that country. It is not necessary for the investor to repatriate the accrued interest or dividends on the deposits and investments made abroad.
So, the dividend earned on your investments in stocks or interest earned from the investments held as bonds can be retained abroad. Such earned income can then be used to re-invest or to meet any expenses abroad. Even the profits realised from investments in ETF’s and real estate can be redeployed abroad without bringing it back to the domestic bank account.