Liberalised Remittance Scheme

Why in news?

• Funds sent abroad by students under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS) sharply declined in last few months.

About the scheme:

• This is the scheme of the Reserve Bank of India.
• Under the scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year for any permissible current or capital account transaction or a combination of both.
• The Scheme is not available to corporations, partnership firms, Hindu Undivided Family (HUF), Trusts etc.
• Though there are no restrictions on the frequency of remittances under LRS, 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.

Remitted Money can be used for:

• Expenses related to travelling (private or for business), medical treatment, study, gifts and donations, maintenance of close relatives and so on.
• Investment in shares, debt instruments, and buy immovable properties in the overseas market.
• Individuals can also open, maintain and hold foreign currency accounts with banks outside India for carrying out transactions permitted under the scheme.

Prohibited Transactions:

• Any purpose specifically prohibited under Schedule-I (like the purchase of lottery tickets, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000.
• 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.

Add ons:

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

PRACTICE QUESTION:

With reference to ‘Liberalised Remittance Scheme’ of RBI, consider the following statements:

1. Under the scheme, resident individuals, are allowed to remit up to USD 2,50,000 per financial year for any permissible current or capital account transaction

2. The scheme is not available to corporations

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer