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Liberalised remittance scheme- A Breather to Economy

Liberalised remittance scheme- A breather to residents to participate in global economy
AS a part of liberalization measures, the Government of India has adopted the liberalization measures and a part of easing the systems and formalities, the Government has replaced FERA with FEMA . Due to the introduction of FEMA and related rules and regulations, many of the investment sectors were made open to foreigners, foreign companies, Non Residents, and Non Resident Indians. This has resulted in a giant leap in the Indian industry and gave a great relief to the economy in general.
Even though the Indian economy has been opened up to Non residents to Invest, the residents were not fully enabled to participate in the booming global economy. There were rules which enable the Indian residents to acquire immovable properties and securities outside India, but the restrictions were on the source for funding those acquisitions.

As a breather to those restrictions the Reserve Bank of India had announced a Liberalised Remittance Scheme (the Scheme) in February 2004 as a step towards further simplification and liberalization of the foreign exchange facilities available to resident individuals.
Under the current scheme which is prevailing as on date, a  resident individual may remit up to USD 75,000 per financial year (april to march)for any permitted capital and current account transactions or a combination of both.

Restrictions on remittances.
Though this scheme enables the Indian residents, who are individuals to remit the money abroad the directions put forward few restrictions on those remittances. Under the scheme it is prohibited to remit money towards business of gambling nature, such as lottery and subscription of magazines, forex trading, purchasing FCCBs etc. The remittances towards neighboring countries like Nepal, Bhutan, Maurituis and Pakistan also prohibited under the scheme. It is also made very clear in the scheme that transferring of money towards individuals and entities posed as terrorist organizations or outfits also prohibited.

The most important factor to be noticed is that, this scheme should not be used for acquiring the immovable properties outside India, directly or indirectly. For acquiring the immovable properties outside India , one should adhere to the regulations and rules issued specifically for that.

There are no restrictions on the frequency of the remittance by the ceiling should be within the maximum permissible limit of $ 75000. Once a remittance is made for an amount up to USD 75,000 during the financial year, he would not be eligible to make any further remittances under this scheme, even if the proceeds of the investments have been brought back into the country.

An added advantage
On reading through the scheme we can clearly understand that the previlage of remittance offered under this scheme is over and above to the those already available for private travel, business travel, studies, medical treatment, etc., as described in Schedule III of Foreign Exchange Management (Current Account Transactions) Rules, 2000. The Scheme can also be used for these purposes. The residents who are availing of the benefits of the scheme and remitting the amount abroad are not required to repatriate the same to India. This provision is giving lot of leverage to the investors who want to participate liberally in the growing and blooming global economies, especially BRIC nations and SAARC.

A resident individual can invest in units of Mutual Funds, Venture Funds, unrated debt securities, promissory notes, etc. under this Scheme. Further, the resident can invest in such securities through the bank account opened abroad for the purpose under the Scheme abd further more that can be used to acquire both listed and unlisted shares of an overseas company.

Compliance required to be done

The individual will have to designate a branch of an AD through which all the 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. If the applicant seeking to make the remittance is a new customer of the bank, Authorised Dealers 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. If such a bank statement is not available, copies of the latest Income Tax Assessment Order or Return filed by the applicant may be obtained. He has to furnish an application-cum-declaration in the specified regarding the purpose of the remittance and declare that the funds belong to him and will not be used for the purposes prohibited or regulated under the Scheme.

If you want to know more on LRS read our FAQ session by clicking here

The author is a Practising Company Secretary and partner of ABP & Associates, Company Secretaries.