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RBI narrowed the definition of relatives to prevent misuse of outward remittances

Reserve Bank of India has recently tapered the relative definition under the ‘maintenance of close relative’ category of Liberalised Remittance Scheme (LRS) to cross check the money outflow and to avoid misapply of the service. Hereafter, remittance under the ‘maintenance of close relative’ category can be sent only to close relatives such as parents, spouses, children and their spouses.

The relative definition under LRS has been associated with the relative definition under Companies Act, 2013 instead of Companies Act, 1956. 

Outward remittance under the maintenance of close relatives had a drastic drift of about $3 billion in 2017-18 from $174 million in 2013-14. 2015-16 has witnessed a steady increase in funds sent under this category which is more than double compared to the previous years. In the same period overall outward remittances under LRS increased from $1 billion to $11 billion. 

PAN card made mandatory for all send money abroad transactions under LRS 

RBI had made PAN card mandatory for all persons remitting money abroad under LRS irrespective of amount. Earlier PAN card was not mandatory for all send money abroad transactions upto $25,000.

Remitter’s data can be aggregated using the PAN details on a real-time basis which would really be a strict method for banks in monitoring and improving compliance. 

Trouble free genuine transactions

The tapering of relative definition doesn’t affect the transaction, if the person is doing genuine transactions. 

RBI has narrowed the definition of relatives under the circumstances that the facility under the liberalised Remittance Scheme is not used for commercial purposes. 

Earlier RBI had made a decision to report the daily outward remittance transactions under Liberalised Remittance Scheme. The daily reporting of individual transaction helps to monitor if an individual violates the remitting amount of $250,00 in a financial year.

Daily reporting of individual transaction has been introduced by RBI under the LRS by banks, which allows the banks to view transfer of funds made by the remitter in order to improve monitoring and ensuring compliance.

With the introduction of PAN card for all remitting money abroad transactions under LRS, remitter- wise data can be aggregated using the PAN card of the sender. 

Liberalised Remittance Scheme is for?

  • All the resident individuals including minors can freely remit the amount using the LRS facility provided by RBI. 
  • Now the LRS limit for all is around Rs. 1.5 crores (250,000 USD) per financial year which has been revised from the LRS limit of US $25,000 at the time of launching.
  • Meeting the expenses for overseas education, travel, medical treatment, maintenance to relatives in abroad, gifting and donations through remittances under LRS
  • Funds can also be used for buying shares and property
  • Under LRS, individuals can open, maintain and hold accounts in the abroad banks. 

Restrictions under LRS

  • Remittances 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 are restricted under LRS.
  • Remitting money to countries recognized as ‘non-cooperative jurisdictions’ by Financial Action Task Force is restricted under LRS.
  • Remitting money to entities with terrorist risks is also banned under this scheme.

What are the requirements for Sending money under LRS?

  • Self-declaration stating the reason of send money should be submitted.
  • PAN Card is compulsory for remitting money under LRS.
  • Bank/ ADII Category Foreign Exchange trader is assigned to do all remittance transactions.
  • Any valid ID proof of the remitter. 

These are made as an exception under LRS

  • Meeting extra medical expenses in abroad

Exception is allowed in case of extra funds needed for medical expenses in abroad. An Individual can send more than USD 250,000 by taking approval from RBI with the submission of valid documents.

  • Extra study abroad funds are also covered

Authorized dealers are allowed to send more than USD 250,000 by showing valid documents stating the extra fund requirement. The individual can remit funds with the approval from RBI.

Follow these 7 outward remittances guidelines under LRS

  1. Remittances done for gifts or donations cannot be counted as a separate remittance which should fall with purvey of LRS
  2. Individual can made remittances transactions more than the limit of $250,000 under LRS, if the study abroad expenses increases. This can be made possible through the submission of document with clear profound of extra amount needed for pursuing the course.
  3. LRS limit for all is the $250,000 per financial year which is around Rs. 1.5 crores. so if a person remits funds in a financial year then the new limit of the person for the year is calculated by lowering the remitted amount from $250,000
  4. Student is allowed to buy or carry foreign currency notes/coins only up to $3000 while travelling and can they are allowed to carry rest using Prepaid Instruments such as forex travel card, Travellers cheques demand drafts. 
  5. No restrictions for number of remittances transaction under LRS.

E-commerce portals, unlimited job and education opportunities have uplifted the remit money abroad opportunities. LRS transactions are increasing year on year especially for meeting educational expenses, hospital expenses, for meeting the business visit expenses, to help the friends or relatives abroad, for meeting the wedding expenses in abroad and many other sudden expenses.

Before proceeding for a remittance transaction make sure to follow the rules and regulations instructed by RBI for a trouble-free transaction.

The recent altering of relative definition of outward remittance under Liberalised Remittance Scheme will not affect the populace if the transactions are genuine. Individuals are not allowed to do transactions for commercial purposes as per this new revision by RBI.

 

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