The Foreign Exchange Management Act 1999 divides transactions into two types:
- Current account and
- Capital account transactions.
Current account transactions are generally allowed unless they are explicitly prohibited. In contrast, capital account transactions are usually only permitted if expressly permitted. This principle also applies to transactions under the Liberalized Remittance Scheme (LRS), where the permissibility of transactions is determined based on whether they fall under the current or capital account category.
A resident individual can withdraw foreign exchange up to an aggregate amount of USD 2,50,000 for the following current account transactions:-
- Private Visits abroad – other than Nepal & Bhutan
Under the Liberalized Remittance Scheme, if you’re a resident of India and planning a private trip to a foreign country (excluding Nepal and Bhutan), you can obtain foreign currency up to USD 2,50,000 from an authorised dealer or forex dealer. This limit applies to any visits you make in a single financial year.
- All Tour-related expenses – outside India
All expenses related to tours, including the cost of transportation (rail, road, water), Euro Rail passes/tickets, and overseas hotel/lodging expenses, will be considered within the limit set by the Liberalized Remittance Scheme (LRS). The tour operator can collect this amount from the resident traveller in either Indian rupees or foreign currency.
- A gift to a resident outside India/ donation to an organisation outside India.
In a single Financial Year, a resident individual can send up to USD 2,50,000 as a gift to someone outside India or as a donation to an overseas organisation. However, for gifting in Indian rupees to an NRI/PIO relative (as defined in Section 2(77) of the Companies Act, 2013), a crossed cheque or electronic transfer must be used. The gift amount must be credited to the recipient’s Non-Resident Ordinary Rupee Account (NRO). It should fall within the overall LRS limit of USD 250,000 per Financial Year for the resident individual. The donor is responsible for ensuring compliance with the LRS limit for all remittances made during the financial year, including the gift amount.
- The person is going abroad for employment.
An individual departing for employment overseas can withdraw foreign currency up to USD 2,50,000 per financial year from any Authorized Dealer within India.
- Remittance for emigration under Liberalised Remittance Scheme
An individual planning to emigrate can obtain foreign currency from AD Category I banks and AD Category II banks up to the limit set by the country of emigration or USD 250,000 for emigration purposes.
Any remittance of foreign exchange exceeding this limit can only be used to cover incidental expenses in the destination country and cannot be utilised to earn points or credits for immigration eligibility through overseas investments in government bonds, land, commercial enterprises, and similar avenues.
- Maintenance of close relatives abroad
In a single financial year, a resident can remit up to USD 2,50,000 to support relatives abroad. Section 2(77) of the Companies Act 2013 outlines the definition of relative’ in this context.
- Business Trip abroad
The participation of individuals in international conferences, seminars, specialised training, apprentice training, and similar events is categorised as business visits. When resident individuals travel for business purposes to foreign countries, they can access foreign exchange up to USD 2,50,000 within a single financial year, regardless of the number of trips made during that period.
However, if an organisation sponsors an employee for any of the purposes mentioned above and covers the associated expenses, such expenses are considered residual current account transactions that fall outside the scope of the Liberalized Remittance Scheme (LRS); in such cases, the Authorized Dealer (AD) may permit these expenses without limit as long as they verify the transaction’s authenticity.
- Medical Treatment abroad
Authorised Dealers can provide foreign exchange up to USD 2,50,000 or its equivalent per Financial Year without requiring an estimate from a hospital or doctor. If the amount exceeds this limit, foreign exchange can be released under general permission based on the estimate provided by a doctor in India or a hospital/doctor abroad.
Suppose a person falls ill after travelling abroad. In that case, they can also receive foreign exchange up to USD 2,50,000 or its equivalent per Financial Year from an Authorized Dealer for medical treatment outside India without prior approval from the RBI.
Additionally, an individual accompanying a patient for medical treatment or check-up abroad can receive up to USD 250,000 per financial year for their expenses as an attendant.
- Remittance for studies abroad
AD Category I banks and AD Category II can provide foreign exchange up to USD 2,50,000 or equivalent to resident individuals for pursuing studies abroad without requiring an estimate from the foreign university.
However, in cases where the amount exceeds USD 2,50,000, AD Category I banks and AD Category II may permit remittances without prior approval from the RBI, based on the estimate received from the institution abroad.
It is essential to know that various transactions like private visits, gifting/donations, going abroad for work, emigration, supporting close relatives abroad, business trips, medical treatment abroad, and studying abroad are all included under the Liberalised Remittance Scheme (LRS). This means that resident individuals, including minors, can remit up to USD 2,50,000 per financial year for these purposes starting May 26, 2015.
However, you need to remit an amount exceeding USD 2,50,000. In that case, you must obtain prior permission from the Reserve Bank of India. This scheme is available to all resident individuals, regardless of age.
BY JAKS Cherthala
Disclaimer:
The content presented in this blog post is intended to provide a general guide to the subject matter. Our team of Chartered Accountants has prepared it, and it is for informational purposes only. While every effort has been made to ensure accuracy and completeness, the information provided herein does not constitute legal, financial, or tax advice. This blog post should be considered a substitute for seeking professional advice about your circumstances. The information in this blog post is based on the laws and regulations in effect at the time of publication. It could be subject to change based on future legislative modifications. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability concerning the website or the information, products, services, or related graphics contained in this blog for any purpose. Therefore, Any reliance on such information is strictly at your own risk. In no event will we be liable for any loss or damage, including, without limitation, indirect or consequential loss or damage, or any loss or damage arising from loss of data or profits arising out of, or in connection with, the use of this blog? Consultation with a professional advisor is advised before deciding or taking any action that might affect your finances. Always seek the advice of your attorney, accountant, or other qualified professional advisor with any questions you may have regarding a legal, tax, or financial matter.