Introduction

There are various reasons one may want to remit money abroad. It could be for the expenses of a foreign education, maintenance of a close relative, to emigrate, for travel & touring, to avail medical treatment abroad, to conduct business, attend a conference or for any other purpose.  

LRS and its limitations

The Reserve Bank of India monitors remittances through the Liberalised Remittance Scheme (LRS). The scheme was introduced in 2004 with a limit of USD 25,000 on remittances. The LRS limit has been regularly revised by the RBI according to the prevailing economic conditions. The first revision was done in 2006 when the amount was increased to USD 50,000. In 2007 it was first increased to USD 100,000 and then further increased in the same year to USD 200,000. In 2013, the limit was sharply reduced to USD 75,000. The next revision came in 2014, where the limit was increased to USD 125,000. Finally, in 2015 the limit was increased to USD 250,000and is unchanged ever since.

Restricted Transactions

Certain transactions are prohibited for LRS while some others require prior approval from the Central Government or the RBI. These restricted transactions are mentioned in the Rules and Guidelines under the Foreign Exchange Management Act. Prohibited transactions include those with countries designated as non-cooperative by the Financial Action Task Force (FATF) or entities with links to terrorism as prescribed by the RBI.  

Requirements for LRS

The remitter will need to designate a branch of an Authorised Dealer (AD) through which all the capital account remittances under the scheme shall be made. The remitter should have sustained the bank account with the bank for at least one year prior to the remittance in case of Capital Account transactions. The AD should conduct due diligence and secure the bank statement or the Income Tax Return for the previous year from the remitter to ascertain the source of funds. The remitter would then need to submit A-2 Form disclosing the purpose of the remittance and declare that the funds belong to the remitter. Further, the remitter must declare that the funds will not be used for purposes restricted under the scheme.  

Frequency of remittances

There is no limit on the frequency of remittances. However, the total cumulative value of the remittances should not exceed USD 250,000 in a year. The remitter will not be allowed to go above the limit even if the proceeds from the investment are brought back into the country.  

Remittances by LLP and Sole Proprietor

An LLP is a separate corporate entity from the individuals who formed it. If an LLP, remits funds for the education of its partners for the well-being of the LLP, then the same will be outside the limitations of the LRS of the partners. It will be considered a current account transaction and no limits will be put on the same. However, a sole proprietorship does not have a distinct legal entity from the owner. Therefore, the capacity and limitation of the owner under LRS will be considered for the sole proprietorship. An individual cannot claim to remit under the identity of the sole proprietorship if they have already done it in their individual capacity.  

Borrowings and LRS

Borrowed funds cannot be remitted for certain uses under FEMA (Borrowing and Lending Regulations). These include investments in capital market including trading & derivatives, agricultural property, real estate, chit fund business and Transferrable Development Rights (TDR).  

LRS, EB-5 Visa and Citizenship By Investment

LRS presents remittance challenges for Citizenship by Investment Programs and EB-5 Visa. Certain Citizenship by Investment programs require more than $1,000,000 investment and recently EB5 investment requirement was revised to $900,000. The LRS has a limitation of USD 250,000 per year.  It is also worth noting that residents cannot combine their remittance limits to make an investment in a single investors name. Therefore, investors must plan in advance and pick a mode of remittance best suited to their needs. Remittances may be done over the years by remitting USD 250,000 each year or by remittance transfers/gift from friends and family.

Sources

Author: Ishwar Pratap Singh Sethi

Ishwar is a graduate of Symbiosis Law School, Pune. At Global Immigration Review Magazine he works in the capacity of Content Management Executive. Global Immigration Review Magazine covers global immigration, migration and mobility trends from the United States, United Kingdom, Canada, Australia, Grenada, Cyprus, Portugal, Turkey. Subject matter of coverage includes study visa, work visa, start up and entrepreneur visa, investment immigration like EB-5 visa and Portugal Golden Visa, citizenship by investment and more.