Q1. What is the Liberalised Remittance Scheme (LRS) of USD 2,50,000?
A1. Under the LRS, all RESIDENT INDIVIDUALS, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April to March) for any permissible CURRENT or CAPITAL account transactions or a combination of both.
In case of remitter being a MINOR, the LRS declaration form must be countersigned by the minor’s natural guardian.
The Scheme is not available to corporates, partnership firms, HUF, Trusts etc.
Q2. What are the purposes under which a resident individual can avail of foreign exchange facility?
A2. Individuals can avail of foreign exchange for the following purposes within the limit of USD 2,50,000 only. Any additional remittance in excess of the said limit for the following purposes shall require prior approval of RBI.
- Private visits to any country (except Nepal and Bhutan)
- Gift or Donation
- Going abroad for employment
- Emigration
- Maintenance of close relatives abroad
- Travel for business or attending a conference or specialised training
- For meeting medical expenses or check up abroad or for accompanying as attendant to a patient going abroad for medical treatment/check-up
- Expenses in connection with medical treatment abroad
- Studies abroad
- Any other current account transaction
Q3. What are the prohibited items under the Scheme?
A3. The remittance facility under the scheme is not available for the following:
- Remittance out of lottery winnings
- Remittance of income from racing/riding etc.
- Remittance for purchase of lottery tickets, banned/proscribed magazines, football pools, sweepstakes etc.
- Remittance from India for margins or margin calls to overseas exchanges/overseas counterparty
- Capital account remittances directly or indirectly to countries identified by Financial Action Task Force (FATF) as “non-cooperative countries and territories”, from time to time
- Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the RBI to the banks
Q4. Can remittances under the LRS facility be consolidated in respect of family members?
A4. Remittances under the facility can be consolidated in respect of close family members subject to the individual family members complying with the terms and conditions of the scheme. However, clubbing is not permitted by other family members for capital accounts such as opening a bank account/investment/purchase of the property, if they are not the co-owners/co-partners of the investment/property/overseas bank account. Further, a resident cannot gift to another resident, in foreign currency, for the credit of the latter’s foreign currency account held abroad under LRS.
Q5. Is the AD (Authorised dealer) required to check permissibility of remittances based on nature of transaction or allow the same based on remitters declaration?
A5. AD will be guided by the nature of transaction as declared by the remitter in Form A2 and will thereafter certify that the remittance is in conformity with the instructions issued by the RBI in this regard from time to time. However, the ultimate responsibility is of the remitter to ensure compliance to the extant FEMA rules/regulations.
Q6. Are there any restrictions on the frequency of the remittance?
A6. There are no restrictions on the frequency of remittances under LRS. 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 2,50,000.
Once a remittance is made for an amount up to USD 2,50,000 during the financial year (April – March), a resident individual would not be eligible to make any further remittances under this scheme, even if the proceeds of the investments have been brought back in to the country.
Q7. What are the requirements to be complied with by the remitter?
A7. The individual will have to designate a branch of an AD through which all the capital account remittances under the scheme will be made. The applicants should have maintained the bank account with the bank for a minimum period of one year prior to the remittance.
For remittances pertaining to permissible current account transactions, if the applicant seeking to make the remittance is a new customer of the bank, AD should carry out due diligence on the opening, operation and maintenance of the account. Further the AD should obtain bank statement for the previous year from the applicant to satisfy themselves regarding the source of funds.
Q8. Can a resident individual make a rupee loan to a NRI/PIO who is a close relative of resident individual, by crossed cheque/electronic transfer?
A8. A resident individual is permitted to make a rupee loan to a NRI/PIO who is a close relative of the resident individual (relative as defined in section 2(77) of Companies Act,2013) by way of crossed cheque/electronic transfer subject to the following conditions:
(i) The loan is free of interest and the minimum maturity of the loan is one year.
(ii) The loan amount should be within the overall limit of USD 2,50,000 per financial year, available to the resident individual. It would be the responsibility of the lender to ensure that the amount of loan is within the LRS limit of USD 2,50,000 during the financial year.
(iii) The loan should be utilised for meeting the borrower’s personal requirements or for his own business purposes in India.
(iv) The loan shall not be utilised, either singly or in association with other person, for any of the activities in which investments by persons outside India is prohibited namely;
(a) the business of chit fund, or
(b) Nidhi company, or
(c) agricultural or plantation activities or in real estate business or construction of farmhouses, or
(d) trading in Transferable development rights (TDRs).
Income Tax (TCS) implications on LRS (w.e.f. 01.10.2020)
Section 206C (1G) of Income tax Act, deals with TCS implications on LRS. As per the said section, every authorised dealer who receives an amount for remittance out of India from a person (buyer) remitting such amount out of India under the LRS of the RBI, shall at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier, collect from the buyer, a sum equal to five percent of such amount as income tax.
- AD shall not collect the sum, if the amount or aggregate of the amounts being remitted by a buyer is less than seven lacs rupees in a financial year
- That the sum to be collected by an AD shall be equal to 5 percent of the amount or aggregate of the amounts in excess of SEVEN LACS RUPEES. Where PAN is not provided by the buyer, TCS rate will be 10%
- If the amount being remitted out is a loan obtained from any financial institution as defined in section 80E (i.e. for the purpose of pursuing the higher education), AD shall collect a sum equal to 0.5% of the amount or aggregate of the amounts in excess of seven lacs rupees remitted by a buyer in a financial year. Where PAN is not provided by the buyer, TCS rate will be 5%.
Also Read: Income Tax on F&O and Intraday Trading
Also Read: TDS on Purchase of Immovable Property (Section 194-IA)
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