There are so many reasons why you might need to send money overseas. Maybe you have a home or family abroad, need to pay for an upcoming holiday or are...
The rules around sending and receiving money from overseas vary all around the world. In India, the Foreign Exchange Management Act (FEMA) is used to control the flow of money in and out of the country - and the Liberalised Remittance Scheme (LRS) is specifically used to manage transfers in which currency moves from India to other countries¹. There are limits and rules in place, which you need to understand if you want to remit money overseas from India.
Here’s a quick guide to help get you started.
Before you get started, a word.
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Now, back to what you came here to read.
The Reserve Bank of India (RBI) is the country’s central bank. It’s responsible for financial oversight, issuing currency, managing foreign exchange, and regulating India’s entire financial system.
The RBI has a huge role to play when it comes to managing the flow of money in and out of the country, under what’s known as the Foreign Exchange Management Act (FEMA). This matters for a number of reasons - firstly, the Indian government must make sure that money being sent into or out of the country doesn’t come from crime, or end up being used for something illegal such as funding terrorism¹
Also, the RBI is responsible for making sure that India’s foreign exchange market develops in an orderly fashion. In layman's terms, this means that the RBI controls and limits the flow of money out of India because excessive outflow of rupees would destabilise the local currency markets and damage the economy²
Now, onto the Liberalized Remittance Scheme (LRS). A remittance is basically any money sent overseas by an individual. You could have an inward remittance - where money is sent to India from abroad. And you have outward remittances - where money is earned in India, and then sent out of the country. The LRS deals with outward remittances only.
Under the LRS, resident individuals can send money abroad for a set number of purposes, up to a maximum annual limit¹ The scheme is described as ‘liberalized’ because until its introduction, resident of India couldn’t send money overseas without specific permissions from the RBI³ The limits on the amount of money which can be remitted overseas have been increasing gradually since the introduction of the LRS, in an effort to gradually move to a more liberalised approach. From a maximum of USD 25,000 allowed when the legislation came into force in 2014, the limits have risen periodically, hitting a maximum of USD 250,000 per year since 2015¹.
Because of the LRS, there’s a cap on the amount of money you can send abroad from India every financial year - which runs from April to March in India. All remittances have to be declared properly using official forms and should be carried out through authorised dealers. Money can also only be remitted for some, pre-set, specific purposes¹.
The annual remittance limit currently stands at USD250,000 or its equivalent in other currencies¹.
The allowable reasons for remittance break down broadly into these groups¹:
- Paying for overseas education
- Travel and tourism costs
- Medical treatment abroad
- Emigration purposes
- Maintenance of family members living abroad
- Gifts and donations to eligible beneficiaries
- Going abroad for employment
- Business trip to a foreign country
For each remittance, you’ll need to give a very specific purpose code. The purpose codes for different remittance types are detailed on the back of the form you’ll need to complete to comply with the remittance rules. It's important that you understand which purpose code you should select for your remittance, and be prepared: the possible remittance codes run to 5 pages, with over a hundred different ones to choose from⁴.
Under the LRS there are also some types of remittance which either are not allowed, or are subject to further controls.
If you want to remit over USD 250,000 in one year you must get special permission from the RBI. There are also some countries and organisations you’re not legally allowed to remit money to¹.
Additionally, you can’t remit money which originates from certain sources including⁵.
- Lottery winnings or proceeds from gambling
- Some company dividends
- Interest payments on some non-resident rupee bank accounts
- Some specific types of income
The introduction of the LRS has made it far easier for Indian residents to remit money abroad. This really has changed people’s lives. One of the most common reasons money is sent abroad from India is to support Indian students pursuing their studies overseas - but LRS also allows Indian people to diversify investments by buying property or shares on markets outside of India.
If you’re an resident in India and want to send money overseas - no matter what the reason - you need to know about the LRS, and how to comply with its requirements.
Because of LRS, remittances abroad - as well as any currency exchange - must be done through an authorised dealer¹. You’ll have to complete some paperwork to make your remittance, including specifying who you’re sending money to, and why⁴. The necessary form is available online.
The implication of the LRS will depend on whether you’re a resident in India, or not. If you’re a resident then the limits set out above apply - but the law is different in regards to non-residents¹.
The LRS applies to resident individuals in India only.
As a non-resident Indian (NRI), you can hold a bank account in India which will fall into one of the following categories⁶:
- NRE (Non-resident external)
- NRO (Non- Resident Ordinary)
- FCNR (B) (Foreign Currency Non-Resident Bank Account)
The remittance rules applied to you will vary depending on your account type. You can remit any amount you wish from an NRE or FCNR (B) account - but there are restrictions in place on what you can pay into these accounts in the first place. If you hold an NRO account, you can remit up to 1 million USD a year out of India⁶. As the rules are relatively complex, it’s well worth taking professional advice if you need to remit a large amount of money out of India.
If you’re new to remittances, you might want to learn more about the process of moving money in and out of India. Knowledge, after all, is power.
Here are some helpful articles to get you started:
- Overview of the World Remittance Industry
- Foreign Remittance (and US tax implications)
- Inward Remittance
- Outward Remittance
- Remittance Address
- Remittance Advice
- FIRC (Foreign Inward Remittance Certificates)
- FEMA & RBI guidelines on remittances
- How to make an outward remittance from India
If you’re planning on moving cash out of India - for any purpose at all - you’ll need to know about the liberalised remittance scheme. It’s a legal requirement that you comply with the LRS rules if you’re a resident in India, so be prepared to complete some paperwork to support your transfer and make sure everything is legally sound.
1.https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10192&Mode=0 (May 22 2018)
2.https://www.rbi.org.in/ (May 22 2018)
3.https://rbi.org.in/Scripts/NotificationUser.aspx?Id=1466&Mode=0 (May 22 2018)
4.https://rbidocs.rbi.org.in/rdocs/content/pdfs/03MD11022016_AN.pdf (May 22 2018)
5.https://indusforex.indusind.com/what-is-liberalised-remittance-scheme-or-lrs (May 22 2018)
6.https://www.personalfinanceplan.in/nri-corner/nri-corner-remittance-facilities-for-nris/ (May 22 2018)
This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from Wise Payments Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.
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