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Forex Facilities for Residents
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.
In terms of Section 5 of the FEMA, persons resident in India1 are free to buy or sell foreign exchange for any current account transaction except for those transactions for which drawal of foreign exchange has been prohibited by Central Government, such as remittance out of lottery winnings; remittance of income from racing/riding, etc., or any other hobby; remittance for purchase of lottery tickets, banned / proscribed magazines, football pools, sweepstakes, etc.; remittance of dividend by any company to which the requirement of dividend balancing is applicable; payment of commission on exports under Rupee State Credit Route, except commission up to 10% of invoice value of exports of tea and tobacco and payment related to "call back services" of telephones.
Foreign Exchange Management (Current Account Transactions) Rules, 2000 - Notification [GSR No.381(E)] dated May 3, 2000 and the revised Schedule III to the Rules as given in the Notification G.S.R. 426(E) dated May 26, 2015 is available in the Official Gazette as well as, as an Annex to our Master Circular on 'Miscellaneous Remittances from India-Facilities for Residents' available on our website www.mastercirculars.rbi.org.in
These FAQs may be referred to for general guidance. The Authorised Persons and their constituents may refer to respective circulars/ notifications for detailed information, if so needed.
Who is an Authorized Dealer?
An Authorised Dealer is any person specifically authorized by the Reserve Bank under Section 10(1) of FEMA, 1999, to deal in foreign exchange or foreign securities (the list of ADs is available on www.rbi.org.in) and normally includes banks.
Who are authorized by the Reserve Bank to sell foreign exchange for travel purposes?
Foreign exchange can be purchased from any authorised person, such as Authorised Dealer (AD) Category-I bank and AD Category II. Full-Fledged Money Changers (FFMCs) are also permitted to release exchange for business and private visits.
What is the Liberalised Remittance Scheme (LRS) of USD 2,50,000 ?
Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April - March) for any permissible current or capital account transaction or a combination of both. Further, resident individuals can avail of foreign exchange facility for the purposes mentioned in Para 1 of Schedule III of FEM (CAT) Amendment Rules 2015, within the limit of USD 2,50,000 only. If an individual remits any amount under LRS in a financial year, then the applicable limit for such individual would be reduced from USD 250,000 by the amount so remitted.
In case of remitter being a minor, the LRS declaration form must be countersigned by the minor's natural guardian.
Can a resident individual make a rupee loan to a NRI/PIO who is a close relative of resident individual, by of crossed cheque/ electronic transfer?
A resident individual is permitted to make a rupee loan to a NRI/PIO who is a close relative of the resident individual ('relative' as defined in section 6 of the Companies Act 1956) by way of crossed cheque/ electronic transfer subject to the following conditions:
- The loan is free of interest and the minimum maturity of the loan is one year.
- The loan amount should be within the overall limit under the Liberalised Remittance Scheme of USD 2,50,000, per financial year, available to the resident individual. It would be the responsibility of the lender to ensure that the amount of loan is within the Liberalised Remittance Scheme limit of USD 2,50,000 during the financial year.
- The loan shall be utilised for meeting the borrower's personal requirements or for his own business purposes in India.
- The loan shall not be utilised, either singly or in association with other person, for any of the activities in which investment by persons resident outside India is prohibited, namely;
the business of chit fund, or
Nidhi Company , or
agricultural or plantation activities or in real estate business, or construction of farmhouses, or trading in Transferable Development Rights (TDRs).
Explanation: For the purpose of item (c) above, real estate business shall not include development of townships, construction of residential / commercial premises, roads or bridges.
- The loan amount should be credited to the NRO a/c of the NRI /PIO. Credit of such loan amount may be treated as an eligible credit to NRO a/c.
- The loan amount shall not be remitted outside India.
- Repayment of loan shall be made by way of inward remittances through normal banking channels or by debit to the Non-resident Ordinary (NRO)/ Non-resident External (NRE) / Foreign Currency Non-resident (FCNR) account of the borrower or out of the sale proceeds of the shares or securities or immovable property against which such loan was granted.
Can a resident individual make a rupee gift to a NRI/PIO who is a close relative of resident individual, by of crossed cheque/ electronic transfer?
A resident individual can make a rupee gift to a NRI/PIO who is a close relative of the resident individual ['close relative' as defined in Section 6 of the Companies Act, 1956] by way of crossed cheque /electronic transfer. The amount should be credited to the Non-Resident (Ordinary) Rupee Account (NRO) a/c of the NRI / PIO and credit of such gift amount may be treated as an eligible credit to NRO a/c. The gift amount would be within the overall limit of USD 250,000 per financial year as permitted under the LRS for a resident individual. It would be the responsibility of the resident donor to ensure that the gift amount being remitted is under the LRS and all the remittances made by the donor during the financial year including the gift amount have not exceeded the limit prescribed under the LRS.
Can the loans of Non-resident be repaid by resident close relatives?
Where an authorised dealer in India has granted loan to a non-resident Indian in accordance with Regulation 7 of the Notification No. FEMA 4/2000-RB dated May 3, 2000, such loans may also be repaid by resident close relative ('relative' as defined in section 6 of the Companies Act, 1956) of the Non-Resident Indian by crediting the borrower's loan account through the bank account of such relative.
What are the prohibited items under the Scheme?
The remittance facility under the Scheme is not available for the following:
- Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery tickets/sweep stakes, 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 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 significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.
Under LRS are resident individuals required to repatriate the accrued interest/dividend on deposits/investments abroad, over and above the principal amount?
The investor can retain and reinvest the income earned on investments made under the Scheme. At present, the residents are not required to repatriate the funds or income generated out of investments made under the Scheme.
However, a resident individual who has made overseas direct investment in the equity shares and compulsorily convertible preference shares of a Joint Venture or Wholly Owned Subsidiary outside India, within the LRS limit then he/she shall have to comply with the terms and conditions as prescribed by our overseas investment guidelines under Notification No. 263/ RB-2013 dated August 5, 2013.
Can remittances under the LRS facility be consolidated in respect of family members?
Remittances under the facility can be consolidated in respect of close family members subject to the individual family members complying with the terms and conditions of the Scheme. However, clubbing is not permitted by other family members for capital account transactions such as opening a bank account/investment/purchase of property, if they are not the co-owners/co-partners of the investment/property/overseas bank account.
Can one use the LRS for purchase of objects of art (paintings, etc.) either directly or through auction house?
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.
Is the AD required to check permissibility of remittances based on nature of transaction or allow the same based on remitters declaration?
AD will be guided by the nature of transaction as declared by the remitter in Form A2 and 'Application cum declaration for purchase of foreign exchange under LRS of USD 250,000' and will thereafter certify that the remittance is in conformity with the instructions issued by the Reserve Bank in this regard from time to time.
Can an individual, who has availed of a loan abroad while as a non-resident Indian repay the same on return to India, under this Scheme as a resident?
Yes, this is permissible.
Is it mandatory for resident individuals to have PAN number for sending outward remittances under the Scheme?
Yes, it is mandatory to have PAN number to make remittances under the Scheme. However, PAN card need not be insisted upon for remittance made towards permissible current account transactions up to USD 25,000.
In case a resident individual requests for an outward remittance by way of issuance of a demand draft (either in his own name or in the name of the beneficiary with whom he intends putting through the permissible transactions) at the time of his private visit abroad, whether the remitter can effect such an outward remittance against self-declaration?
Such outward remittance in the form of a DD can be effected against the declaration by the resident individual in the format prescribed under the Scheme.
Are there any restrictions on the frequency of the remittance?
There are no restrictions on the frequency of remittances under LRS. However, the total amount of foreign exchange purchased from or remitted through, all sources in India during a financial year should be within the cumulative limit of USD 2,50,000.
Once a remittance is made for an amount up to USD 2,50,000 during the financial year, a resident individual 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.
Whether LRS facility is in addition to existing facilities detailed in para 1 of Schedule III of FEM (CAT) Amendment Rules, 2015?
No. The existing facilities detailed in Para 1 of Schedule III to FEM (CAT) Amendment Rules, 2015, have been subsumed under the limit of USD 2,50,000 available to resident individuals per financial year under the LRS scheme w.e.f. May 26, 2015. However, for 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.
What are the purposes under FEM (CAT) Amendment Rules, 2015, under which a resident individual can avail of foreign exchange facility?
Individuals can avail of foreign exchange facility for the following purposes within the limit of USD 2,50,000 only on financial year basis.
- Private visits to any country (except Nepal and Bhutan)
- Gift or donation.
- Going abroad for employment
- Maintenance of close relatives abroad
- Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up.
- Expenses in connection with medical treatment abroad
- Studies abroad
- Any other current account transaction
- Any additional remittance in excess of the said limit for the above mentioned purposes shall require prior approval of the Reserve Bank of India.
- "Any other current account transaction" as given at (ix) above is to cover any other current account transactions which were available to individuals in the erstwhile Schedule III to FEM (CAT) Rules, 2000 dated May 3, 2000, and which do not appear above/ in Schedule III to FEM (CAT) Amendment Rules, 2015.
However, for purposes such as emigration; expenses in connection with medical treatment abroad and studies abroad, individuals may be permitted to 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.
The AD bank may undertake the remittance transaction without RBI's permission for all residual current account transactions which are not prohibited/ restricted transactions under Schedule I, II or III of FEM (CAT) Rules, 2000, as amended from time to time. It is for the AD bank to satisfy themselves about the genuineness of the transaction, as hitherto.
The resident individual needs to fill up the Form A2 as well as the 'Application cum declaration for purchase of foreign exchange under LRS of USD 250,000'.
How much foreign exchange can one buy when traveling abroad on private visits to a country outside India?
For private visits abroad, other than to Nepal and Bhutan, any resident can obtain foreign exchange up to an aggregate amount of USD 2,50,000, from an Authorised Dealer or FFMC, in any one financial year, irrespective of the number of visits undertaken during the year. This limit has been subsumed under the Liberalised Remittance Scheme w.e.f. May 26, 2015. If an individual has already remitted any amount under the Liberalised Remittance Scheme in a financial year, then the applicable limit for travelling purpose for such individual would be reduced from USD 250,000 by the amount so remitted.
The resident individuals shall have to fill Form A2 and 'Application cum declaration for purchase of foreign exchange under LRS of USD 250,000' while availing foreign exchange for travelling purposes from AD banks and FFMCs.
No foreign exchange is available for visit to Nepal and/or Bhutan for any purpose. A resident Indian is allowed to take INR of denomination of Rs.100 or lesser denomination, to Nepal and Bhutan, without any limits. For denominations of Rs 500 and Rs1,000, the limit is Rs 25,000.
Further, all tour related expenses including cost of rail/road/water transportation charges outside India and remittances relating towards cost of Euro Rail; passes/tickets, etc. for Indian travellers, and overseas hotel/flight charges have been subsumed under the new enhanced limit of USD 250,000. The tour operator can collect this amount either INR or in FCY.
How much foreign exchange can a resident send as gift / donation to a person resident outside India?
Any resident individual/ entity (trust; company; partnership firm, etc.), may remit up-to USD 2,50,000 in one financial year as gift to a person residing outside India or as donation to an organization outside India. Remittances exceeding the limit of USD 2,50,000 will require prior permission from the Reserve Bank. It is clarified that a resident cannot gift to another resident, in foreign currency, for the credit of the latter's foreign currency account held abroad under LRS.
Further, general permission is available to persons other than individuals' to remit towards donations up-to one per cent of their foreign exchange earnings during the previous three financial years or USD 5,000,000, whichever is less, for (a) creation of Chairs in reputed educational institutes, (b) contribution to funds (not being an investment fund) promoted by educational institutes; and (c) contribution to a technical institution or body or association in the field of activity of the donor Company. Any additional remittance in excess of the same shall require prior approval of the Reserve Bank of India.
How much foreign exchange is available to a person going abroad on employment?
A person going abroad for employment can draw foreign exchange up to USD 2,50,000 per financial year from any Authorised Dealer in India on the basis of self-declaration in Form A2 and 'Application cum declaration for purchase of foreign exchange under LRS of USD 250,000'. This limit has been subsumed under the Liberalised Remittance Scheme w.e.f. May 26, 2015. If an individual remits any amount under the Liberalised Remittance Scheme in a financial year, then the applicable limit for such individual would be reduced from USD 250,000 by the amount so remitted.
How much foreign exchange is available to a person going abroad on emigration?
A person going abroad on emigration can draw foreign exchange from AD Category I bank and AD Category II up to the amount prescribed by the country of emigration or USD 250,000. This amount is only to meet the incidental expenses in the country of emigration. Further, this remittance is not for undertaking any capital account transactions such as overseas investment in government bonds; land; commercial enterprise; etc. No amount of foreign exchange can be remitted outside India to become eligible or for earning points or credits for immigration.
How much foreign exchange can a person resident in India remit towards maintenance of close relatives abroad?
A person resident in India can remit up-to USD 250,000 per financial year towards maintenance of close relative ('relative' as defined in section 6 of the Companies Act, 1956) abroad. This limit has been subsumed under the Liberalised Remittance Scheme w.e.f. May 26, 2015. If an individual remits any amount under the Liberalised Remittance Scheme in a financial year, then the applicable limit for such individual would be reduced from USD 250,000 by the amount so remitted.
How much foreign exchange is available for a business trip?
For business trips to foreign countries, resident individuals/ individuals having proprietorship firms can avail of foreign exchange up to USD 2,50,000 in a financial year irrespective of the number of visits undertaken during the year. This limit has been subsumed under the Liberalised Remittance Scheme w.e.f. May 26, 2015.
Visits in connection with attending of an international conference, seminar, specialised training, apprentice training, etc., are treated as business visits. Release of foreign exchange exceeding USD 2,50,000 for business travel abroad, irrespective of the period of stay, by residents require prior permission from the Reserve Bank.
However, if an employee is being deputed by a company and the expenses are borne by the company, then such expenses shall be treated as residual current account transactions and may be permitted by the AD bank, without any limit, subject to verifying the bonafides of the transaction.
The above information has been taken from the website of Reserve Bank of India. For more information / details on the subject, please Click Here
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