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    Liberalised Remittance Scheme – Provisions Of FEMA

    The legal framework for administration of foreign exchange transactions in India is provided by the Foreign Exchange Management Act, 1999. Under the Foreign Exchange Management Act, 1999 (FEMA), which came into force with effect from June 1, 2000, all transactions involving foreign exchange have been classified either as capital or current account transactions. All transactions undertaken by a resident that do not alter his / her assets or liabilities, including contingent liabilities, outside India are current account transactions.

    Journey of the LRS

    RBI in order to liberalise the remittance facilities to the resident Individuals have first time introduced the concept of Liberalised Remittance Scheme for undertaking certain transactions in foreign currency, vide its A.P. (DIR Series) Circular No. 64, dated February 4, 2004. Since then the scheme was modified from time to time.

    LRS was implemented by way of inserting proviso under Regulation 4(a) of Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000.

    The following table indicates the History of limits applicable under the scheme

    Sl. No.

    Effective Date

    Applicable Limit (USD)

    1

    04-02-2004

    25,000

    2

    20-12-2006

    50,000

    3

    08-05-2007

    1,00,000

    4

    26-09-2007

    2,00,000

    5

    14-08-20 13

    75,000

    6

    03-06-2014

    1,25,000

    7

    01-06-2015

    2,50,000

    Nature of transactions covered under the LRS

     

    1. Private visits to any cou ntry (except Nepal and Bhutan)
    2. Gift or donation.

    iii. Going abroad for employment

    1. Emigration
    2. Maintenance of close relatives abroad
    3. Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or checkup abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ checkup.

    vii. Studies abroad

    viii. opening of foreign currency account abroad with a bank;

    1. purchase of property abroad;
    2. making investments abroad (for acquisition of shares; ESOPs; ESOPs linked to ADR/GDR; qualification shares; investment in units of Mutual Funds, Venture Funds, unrated debt securities, promissory notes, etc.);
    3. setting up Wholly Owned Subsidiaries and Joint Ventures abroad (in t/o FEMA Notification No. 263/RB2013 dated August 5, 2013);

    xii. extending loans in INR to Non Resident Indians (NRIs) who are relatives as defined in Companies Act.

    xiii. Any other current account transaction

     

    However, for purposes such as emigration; expenses in connection with medical treatment abroad and studies abroad individuals may avail of exchange facility for an amount in excess of the overall limit prescribed under the LRS, if it is so required by a country of emigration, medical institute offering treatment or the university respectively

     

    Prohibitions under the scheme:

     

    1. Remittance for any purpose specifically prohibited under Schedule (like purchase of lottery tickets/sweep stakes, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Cu rrent Account Transactions) Rules, 2000.

     

    1. Remittance from India for margins or margin calls to overseas exchanges / overseas counterparty.

     

    1. Remittances for purchase of FCCBs issued by Indian companies in the overseas secondary market.

     

    1. Remittance for trading in foreign exchange abroad.
    2. 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.
    3. Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.

    Other related issues

     

    1. The facility is available to all resident individuals including minors. In case of remitter being a minor, the LRS declaration form should be countersigned by the minor’s natural guardian.
    2. Remittances under the facility can be consolidated in respect of family members subject to individual family members complying with the terms and conditions of the scheme; and
    3. Remittances under the scheme can be used for purchasing objects of art subject to the provisions of other applicable laws such as the extant Foreign Trade Policy of the Government of India
    4. No banks should extend any kind of credit facilities to resident individuals to facilitate remittances under the Scheme
    5. All banks, both Indian and foreign, including those not having an operational presence in India should seek prior approval from the Reserve Bank for the schemes being marketed by them in India to residents either for soliciting foreign currency deposits for their foreign/overseas branches or for acting as agents for overseas mutual funds or any other foreign financial services company.
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