The RBI prescribes separate limits for other
remittances such as travel, education or medical expenses (see table). These
limits are in addition to the limits prescribed by the LRS.
Purpose
|
Limit
|
Private travel
|
$10,000 per financial year
|
Business travel
|
$ 25,000 per trip
|
Studies
|
$ 1,00,000 per academic year
|
Medical treatment
|
$ 1,00,000 per financial year
|
Liberalised Remittance Scheme
|
$ 2,00,000 per financial year
|
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.
In 2004, 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
$2,00,000 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?
LRS can 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
For instance, if a customer decides to open a
broking account abroad and deposits $2,00,000 (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.
What is the procedure to remit funds under
the LRS?
Step 1: Approach your bank to make the
remittance. If you have been an account holder in the bank for less than one
year, you would need to provide copies of bank statement of the previous year
or copies of the latest income tax return or assessment order.
Step 2: Submit the application cum
declaration form A2
Step 3: Submit a draft for the amount you
want to remit
While these are the only documents needed to
be submitted, several banks ask for other documents such as a Form 15CA and
15CB.
In fact, a 2011 the RBI called for a review
of the remittance facilities. The report recognized the need for clarity on
remittance procedures:
‘There is no
clarity or uniformity among ADs and while some ADs insist on the submission of
the Form 15 CA/CB for remittances under the Liberalised Remittance Scheme
(LRS), some insist only for remittances above US $ 5000 and some don't obtain
Form 15 CA/CB at all. This is borne out by the survey results (Annex V) and is
not an acceptable situation as it means some residents are subjected to
unnecessary costs and harassment while others are not,’ the report stated. The
report further went on to recommend, ‘To enable hassle-free remittances by
resident individuals banks may be advised by RBI not to insist on the
submission of form 15 CA/15 CB for any remittances under the Liberalised
Remittance Scheme (LRS).’
We can hope that the process becomes clearer
and more transparent in the coming days.
An individual needs to be very well aware of
these limitations. There is an extensive list of FAQs on the RBI site which
might be helpful. Although some of it might still be unclear, we recommend that
you go through it to understand the requirements. One needs to go into the
bank, educated, before giving the bank an opportunity to pose difficulties.
Most the time, it's the bank which is actually unaware of the LRS process.
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