Thursday, August 13, 2020

All you need to know about the Liberalized Remittance Scheme

Liberalised Remittance Scheme

If you are interested in foreign investments, then a Liberalized Remittance Scheme can prove beneficial for you. It is a provision provided by the Reserve Bank of India whereby Indian citizens are permitted to remit a certain sum in foreign investment and other expenditure in overseas. Let’s find more out the scheme in detail.

101 of Liberalized Remittance Scheme of RBI

Reserve Bank of India’s Liberalized Remittance Scheme permits residents of the country to money on other countries during a financial year at a set margin. As per the current regulation, an individual is allowed to remit a total sum of not more than $250,000 in a particular financial year. This amount can be used to pay for traveling, medical treatment, studying, gifts, donations, and any other commodity in the foreign land. The amount can also be used for investment in shares, debt instruments and to buy immovable properties in the overseas market. The scheme also allows Indian citizens to open, maintain, and hold foreign currency accounts with banks that are situated outside the country.

According to Section2 (77) of the Companies Act, 2013, a resident individual can also make a rupee gift to an NRI/PIO who is a close relative, by cross cheque or electronic transfer. The gift amount should be within the limit prescribed by the LRS scheme, which is $250,000 per financial year. It is the total responsibility of the resident donor to ensure that the gift amount that is remitted is as prescribed under the LRS Scheme.

What are the restrictions/limitations in Liberalized Remittance Scheme?

Under the Liberalized Remittance Scheme, certain items are prohibited. All these items are mentioned below.

  • The purchase of lottery tickets, sweepstakes, proscribed magazines, etc from a foreign land is prohibited under Schedule-1 while holding current accounts overseas is prohibited are under Schedule -2.
  • Any remittance from India for margins or margin calls made to overseas exchanges or overseas counterparty is forbidden.
  • Any remittance made for trading in foreign exchange abroad is barred.
  • The remittances for purchase of FCCBs that are issued by the Indian companies in the overseas secondary market are prohibited under the Liberalized Remittance Scheme.
  • Any remittances of capital account made directly or indirectly to non-cooperative countries or territories identified by the Financial Action Task Force (FATF) are forbidden under the scheme.
  • Any individuals and entities who pose a significant risk of committing acts of terrorism are also prohibited from remittances directly or indirectly under this scheme.

For individuals and entities who pose no such prohibitions mentioned above can easily remit a sum of $250,000 every financial year. There is no limit to the frequencies of the remittance that individuals can make. This means once the remittance is made for an amount of $250,000 in a financial year, the citizen will then be no longer allowed to make any more remittances. This case exists even if the investments have been bought back to the country.

Remittance by Sole proprietor under the Liberalized Remittance Scheme

In a sole proprietorship business, there is no legal distinction between the owner/individual. This states that the owner of the business can remit USD up to the permissible limit as mentioned under the Scheme. The individual capacity has to be reckoned if a sole proprietorship business wants to remit the money under the scheme by debiting the current account. It is also mentioned under the scheme that there is no need for any prior approval to open, maintain, and hold foreign currency account with a bank outside India, for making remittance under the scheme.

Under the Liberalized Remittance Scheme, no resident individual is required to repatriate the acquired interest/dividend on deposits or investments made abroad over and above the principal amount. The individual resident will have to comply with the terms and conditions as prescribed under Regulations 2004 as amended from time to time.

Can a citizen take loan under the scheme?

Resident Individuals under the Liberalized Remittance Scheme are permitted to make rupee loan to an NRI/PIO based on certain points which are mentioned below:

  • The scheme states that citizens are allowed to make a rupee loan to an NRI/PIO by cross cheque or electronic transfer only to those who are a close relative.
  • The loan provided shall be free from any interest and the minimum maturity of the loan shall be for one year.
  • The lender of the loan shall ensure that the loan amount is within the prescribed amount as per the Liberalized Remittance Scheme, which is $250,000 per financial year.
  • The loan provided shall be used by the borrower to meet his personal requirements only. This amount can also be utilized for the borrower’s business purposes in India.
  • The loan is not permitted to be used either singly or in association with any other person, for any such activities in which investments by person residents outside India is prohibited. Some of the activities of investments prohibited are for the business for chit fund, any Nidhi Company investments, agricultural and plantation activities, real estate, constructions, farmhouse, and trading in any transferable development rights.
  • Under the scheme, the loan amount shall be credited in the NRO account of the NRI/PIO. The credit of such a loan amount shall be treated as an eligible credit to the NRO account.
  • In any field, the loan amount is not permitted to be remitted outside India.
  • The repayment of such a loan shall be made by inward remittances made by normal banking channels or by debit to the NRO/NRE/FCNR account of the borrower. Repayment can also be made by sales proceed of the shares, securities, or immovable property against which the loan was granted.

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