LIBERALIZED REMITTANCE SCHEME (LRS) - ECONOMY
News:
Credit cards puts under LRS to check excess forex spends: govt.
What's in the news?
● The
government sought to clarify its decision to bring overseas credit card spends under the Liberalized Remittance
Scheme (LRS) for forex outgo, stating some individuals were exceeding the
$2.5 lakh annual limit set for the cards under the scheme.
Key takeaways:
● While
debit card spends were covered under the LRS, data collected from top money
remitters under the scheme revealed that international credit cards were being
issued with limits in excess of the norm.
● There
will be no change in the 5% TCS levied
on medical or education expenses abroad, which are permitted up to ₹7 lakh a
year.
Exception given to business visits:
● The
scheme will not cover bona fide business
visits overseas by employees and said the imposition of 20% tax collection
on source or TCS for foreign remittances will primarily impact tour travel
packages, gifts to non-residents and domestic high net-worth individuals
investing in assets such as real estate, bonds, stocks outside India.
Liberalized Remittance Scheme:
Backdrop:
● The
scheme was introduced in February 2004 and its regulations are provided under Foreign Exchange Management Act (FEMA),
1999.
Features:
● It
allows resident individuals to remit a certain amount of money during a
financial year to another country for investment and expenditure.
● According
to the prevailing regulations, resident individuals may remit up to $250,000 per financial year.
Eligible persons:
● LRS
is open to everyone including
non-residents, NRIs, persons of Indian origin (PIOs), foreign citizens with PIO
status and foreign nationals of Indian origin.
● The
Scheme is not available to
corporations, partnership firms, Hindu Undivided Family (HUF), Trusts etc.
● The
definition of relatives under LRS has been now aligned with the definition of
relative with the definition given in Companies
Act, 2013 instead of Companies Act, 1956.
Permitted activities:
● 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.
Prohibited activities:
● 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 the Financial Action Task Force (FAFT).
● It
also prohibits remittances to entities identified as posing terrorist risks.