Liberalised Remittance Scheme: RBI alters definition of relative to check outward remittances
The Reserve Bank of India (RBI) has narrowed the definition of relatives under the ‘maintenance of close relative’ category of Liberalised Remittance Scheme (LRS) to check outflow of funds and prevent misuse of facility. Henceforth, funds under this category can be sent only to immediate relatives such as parents, spouses, children and their spouses.
The definition of relatives under LRS has been now aligned with definition of relative with definition given in Companies Act, 2013 instead of Companies Act, 1956. Outward remittances under maintenance of close relatives had shot up to almost $3 billion in 2017-18 from mere $174 million in 2013-14. The funds sent under this category have more than doubled since 2015-16. Overall outward remittances under LRS went up to $11 billion from $1 billion in the same period. Earlier in June 2018, RBI had made PAN mandatory for anyone using LRS for remitting money outside the country. Earlier PAN was not insisted upon for putting current account transactions of up to $25,000.
Liberalised Remittance Scheme (LRS)
LRS is facility provided by RBI for all resident individuals including minors to freely remit upto certain amount in terms of US Dollar for current and capital account purposes or combination of both. The scheme was introduced in February 2004 and its regulations are provided under Foreign Exchange Management Act (FEMA), 1999. After it was launched, the LRS limit was US $25,000, but it has been revised in stages consistent with prevailing macro and micro economic conditions. At present, LRS limit for all resident individuals, including minors, is US $2,50,000 (Rs. 1.5 crore) per financial year.
Under LRS, individuals can make remittances for overseas education, travel, medical treatment, maintenance to relatives living abroad, gifting and donations. The remitted money can be used for purchase of shares and property as well. Individuals can also open, maintain and hold foreign currency accounts with overseas banks for carrying out transactions under it.
Restrictions: Under LRS, remittances cannot be used for trading on foreign exchange markets, purchase of Foreign Currency Convertible Bonds issued abroad by Indian companies and margin or margin calls to overseas exchanges and counterparties. Similarly, individuals are not allowed to send money to countries identified as ‘non cooperative jurisdictions’ by Financial Action Task Force (FAFT). It also prohibits remittances to entities identified as posing terrorist risks.