Decoding remittance rule: You can’t accumulate wealth in form of bank balance outside India

If you have legitimate money outside India in the form of foreign exchange, you need to invest it or use it, you can’t keep it parked in a bank account abroad forever, as per revised LRS regulations. Wealthy Indians, who have been parking their funds legitimately outside the country, are said to be in a fix due to the Liberalised Remittance Scheme (LRS) regulation that restrains them from keeping their money in offshore bank accounts for more than six months.

As per the rule, if someone has an unutilised foreign exchange, it must be brought back/repatriated or surrendered within 180 days of realisation. There was no such rule earlier, which allowed affluent citizens to park foreign exchange in bank accounts abroad. In an email interaction with FE PF Desk, Punit Shah, Partner at Dhruva Advisors, explained the revised LRS regulation and its implications for affluent Indians. Edited excerpts:

Is this a new rule?

Shas says that the said LRS rule is not new as it was announced in August 2022. “There are as such no new remittance rules which have been announced recently. The new remittance rules were announced in August 2022.”

What the rule says

As per Shah, one of the important amendments made in the LRS regulations is that the unutilised foreign exchange must be brought back by the individual within 180 days of realisation. Under the previous LRS regime, there was no such stipulation, and the unutilised forex could be retained outside India indefinitely.

Also Read: Travelling abroad to cost more: Rate of TCS on foreign remittances has been raised to 20% from 5%

Why wealthy Indians are in a fix over the LRS regulation?

According to Shah, there are several ambiguities regarding the interpretation of the changed LRS regulation that have put wealthy Indians in a fix.

1. The first ambiguity arises regarding the meaning of the term unutilised foreign exchange.

“Most of the authorised dealers (ADs) have taken the view that if the forex is lying in the overseas bank account of the individual, even in the form of Fixed Deposit (FD), can be construed as unutilised forex to be brought back into India within 180 days,” says Shah.

2. Similar interpretation issues may arise in case the investment is made in the money market instruments etc.

“This interpretation may force the individual to liquidate their such assets outside India and bring back the money within 180 days,” he says.

3. Also, the individuals may not be able to retain money/realisation beyond 180 days and wait for the right investment opportunities outside India. “Another fall out of this regulation is that the individuals cannot accumulate wealth in the form of bank balance outside India,” says Shah.

Also Read: Dollar remittances that are not invested abroad must be repatriated within 180 days

No way to reduce tax on remittances?

The expert says that TCS on the remittance has been increased from 5% to 20%, which is mandatory and there is no way to avoid or reduce taxes on foreign remittances.

“This is a mandatory levy on all LRS remittances, for which tax credit would be available to the remitter. One cannot reduce or avoid these taxes,” says Shah.