Decoding the Liberalized Remittance Scheme

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What is the Liberalized Remittance Scheme

Whether you’re thinking about investing overseas, taking a trip abroad, or planning to study abroad, the RBI’s Liberalized Remittance Scheme will be your one-stop shop for all your foreign exchange (forex) problems. LRS or Liberalized Remittance Scheme is all about the remittances (investing overseas) that a resident individual is entitled to make, as the name implies. The blog is an attempt to educate and enlighten you more about this scheme governed by the RBI.

Let’s know more about Forex Market & Trading Concepts for Beginners

What is the Liberalized Remittance Scheme?

As the Reserve Bank of India (RBI) aimed to control capital outflow, Indian individuals had to get permission from the RBI every time they moved money outside prior to 2004. The Reserve Bank of India was afraid that large money outflows might destabilize the rupee and cause it to lose value. The RBI was concerned that if everyone began selling rupees and purchased dollars, the rupee’s value would decline while the dollar’s value would rise. Because India’s economy is primarily reliant on international imports paid in US dollars, the cost of ordinary commodities would rise, destabilizing the country.

The RBI, on the other hand, recognized the need for an open cross-border capital movement for economic growth. As a result, the RBI implemented a new policy in 2004 to loosen capital outflow controls. The Liberalized Remittance Scheme is the name of this new program (Liberalized Remittance Scheme). Individuals can move money across borders without obtaining RBI authorization under the Liberalized Remittance Scheme. The scheme has made it easier for Indian citizens to study, travel, and invest in countries other than their own.

Credits: NRI Money Clinic

In a nutshell, the RBI introduced the Liberalized Remittance Scheme as a liberalization measure to allow Resident Individuals (RI) to freely remit funds outside India up to USD 250,000 (INR 1,89,72,137). A financial year of April to March is used for any permissible current or capital account transaction, or a mix of both.

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Why is Liberalized Remittance Scheme Important?

By providing sufficient structure and rules, the Liberalized Remittance Scheme allows you to transfer money overseas in the way you want. The LRS outlines lawful methods for transferring monies. The LRS enables residents to invest in foreign assets and improve their financial prospects for themselves and their families. LRS provides a secure and effective alternative for families with children studying abroad to pay fees and meet living expenses. Many Indians go to other countries for medical treatment. The LRS enables them to pay for it without having to deal with a slew of regulations and paperwork.

What are the Advantages of Liberalized Remittance Scheme?

One of the best benefits of the LRS is that it will allow candidates to come up with different types of investment plans as per the international financial markets without going through the complicated process of taking permission from the Reserve Bank of India. This way the candidates will be able to boost their investment portfolio while also receiving access to different types of financial instruments.

The scheme will also help Indian students to transfer any amount of money to their friends as well as family members who are living and working abroad. This will undoubtedly prove useful when individuals need funds urgently.

Who is Eligible to Leverage the Benefits of Liberalized Remittance Scheme?

If you want to avail the eye-catching benefits of the LRS, you need to be an Indian resident defined under FEMA. You must also need to have a valid PAN card, a valid passport, and an Indian bank account. Apart from that, the amount you remit should not be more than USD 250,000 as per the financial year.

This specific scheme will permit Indian citizens to avail of benefits of up to $250,000. The candidates can use this amount for any purpose such as educational, personal, business, and other purposes.

Types of Remittances Prohibited Under Liberalized Remittance Scheme

The following remittances are forbidden under the Liberalized Remittance Scheme, according to the current RBI guidelines:

  • Remittance for any purpose expressly forbidden by Schedules I and II of the current account transaction regulations (2000). The purchases of lottery tickets and banned periodicals are among the reasons, although they are not the only ones.
  • Remittances from India to international exchanges/counterparties for margins or margin calls.
  • On the secondary market in foreign nations, remittances are utilized to purchase Foreign Currency Convertible Bonds issued by Indian firms.
  • Remittances to be used for foreign exchange trading.
  • Direct or indirect capital account remittances to nations designated as “non-cooperative countries and territories” by the Financial Action Task Force (FATF). Regularly, the list is updated.
  • Remittances to persons and companies classified as having a considerable risk of conducting terrorist actions, as informed individually to banks by the RBI.

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Exchange Facility for Amounts Greater than USD 250,000

If the nation of emigration, the medical institute administering treatment, or the university needs it, RI may use the facility above the limit specified, which is USD 250,000 for emigration, medical treatment, or studies outside the country. One must remember that it can only happen under particular/specific conditions. In some circumstances, prior RBI approval is necessary to transfer cash worth more than USD 250,000 (INR 1,89,72,137).

Prohibited Items under the LRS

The remittance facility under the Liberalized Remittance Scheme is not available for the following:

  • Remittance for any purpose specifically prohibited under Schedule-I (like the purchase of lottery tickets/sweepstakes, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000.
  • Remittance from India for margins or margin calls to overseas exchanges / overseas counterparty.
  • Remittances for the purchase of FCCBs issued by Indian companies in the overseas secondary market.
  • Remittance for trading in foreign exchange abroad.
  • Capital account remittances, directly or indirectly, to countries identified by the 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 a significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.

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What kind of Current Account transactions are permitted under LRS?

Under LRS, the following current account transactions are permitted:
-Private visit (other than Nepal & Bhutan)
-Gift or donation, including a rupee gift, to a close relative who is a Non-Resident Indian (NRI)/Person of Indian Origin (PIO)
-Overseas business trip
-Medical treatment abroad
-Pursuing studies outside India
-Going outside India for employment
-Maintenance of close relatives abroad

Under the LRS, which Capital Account transactions are permitted?

Under LRS, the following Capital account transactions are permitted:
-Opening, holding, and maintaining a foreign currency account with a bank in another country.
-Purchase of real estate in another country.
-Investing in overseas stock shares, debt instruments, mutual funds, venture capital funds, and other securities.
-Providing loans to relatives of non-resident Indians as specified by the Companies Act.
-Establishing a Wholly Owned Subsidiary (WOS) or a Joint Venture (JV) outside of India for any legitimate commercial purpose, subject to the Overseas Direct Investments (ODI) requirements.

Is it mandatory for resident individuals to have a Permanent Account Number (PAN) for sending outward remittances under the Scheme?

Yes, It is mandatory for the resident individual to provide his/her Permanent Account Number (PAN) for all transactions under LRS made through Authorized Persons.

We hope that this blog has provided you with all of the information you want regarding liberalized remittance scheme. Do you want to study abroad? Leverage Edu’s specialists can assist you in finding the best course and universities. Call us at 1800572000 to arrange your 30-minutes of FREE e-meeting, and we’ll provide you with personalized services tailored to your specific requirements.

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