Liberalised Remittance Scheme 2004

In 2004, as a step towards further simplification and liberalization of foreign exchange facilities available to resident Indians, the Reserve Bank of India (RBI) announced the Liberalised Remittance Scheme (LRS).

Thanks to this scheme, foreign remittances today can be freely made by residents to the extent of $200,000 per financial year. Remittances made under the LRS can be used to buy property abroad or to invest in shares, mutual funds or debt instruments in any foreign country without prior approval of the RBI.

While the scheme looks attractive on paper, it is ridden with several practical roadblocks. Confusion exists on what is allowed under the scheme, what documents are needed to be submitted and so on. Let us try to throw light on these practical aspects.

What can the LRS be used for?

> Buying property abroad

> Investing in shares, securities, bonds, mutual funds abroad

> Opening and maintaining foreign currency accounts with banks outside India for carrying out the above mentioned transactions

> Gifts and donations abroad

The RBI prescribes separate limits for other remittances such as travel, education or medical expenses.

These limits are also gross limits. That is, you can remit up to these limits out of the country irrespective of how much you bring in. For instance, if a customer decides to open a broking account abroad and deposits $200,000 (under the Liberalised Remittance Scheme) and later that year, decides he wants to withdraw all his money and open an account at another financial institution, he will not be able to do so.

What is not permitted under the LRS?

The following transactions are not permitted for remittance under the LRS:

> Transactions that are explicitly prohibited by RBI such as purchase of lottery tickets, sweepstakes etc

> Remittance from India for margins or margin calls to overseas exchanges

> Remittances for purchase of FCCBs issued by Indian companies in the overseas secondary market;

> Remittance for trading in foreign exchange abroad;

> Remittance by a resident individual for setting up a company abroad;

There is also restriction on remittance to some countries like Bhutan, Nepal, Mauritius, Pakistan and certain other countries that are enlisted by the Government from time to time.

How does the bank verify your purpose of remittance?

At the time of making remittance, you would have to submit a self declaration form stating the purpose of your remittance. The bank or authorised dealer will only go by your declaration.