Liberalised Remittance Scheme

What’s in today’s article?

• Why in news?
• What is Liberalised Remittance Scheme?
• Background of LRS
• What are the allowed transactions under the LRS?
• What are the restrictions under LRS?
• News Summary: Liberalised Remittance Scheme

Why in news?

• Funds sent abroad by students under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS) declined by over 42 per cent to $2.57 billion during the nine months ended December 2022 of the current fiscal (2022-23).
• This amount was $ 4.4 billion in the same period of 2021.

What is Liberalised Remittance Scheme?

• Liberalised Remittance Scheme (LRS) was brought out by the RBI in 2004.
• 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.

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Background of LRS

• Resident Indians or people resident in India are allowed to transfer foreign currency under the foreign exchange regulations.
  • The transfer of foreign currency outside India is governed by the Foreign Exchange Management Act, 1999 (FEMA).
• Hence, to regulate transferring of funds within a specified limit, RBI brought the LRS.

What are the allowed transactions under the LRS?

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Image Caption: Allowed transactions under LRS

• Apart from the areas highlighted in the above diagram, the remitted amount can also be invested in shares, debt instruments, and be used to buy immovable properties in overseas market.
• Individuals can also open, maintain and hold foreign currency accounts with banks outside India for carrying out transactions permitted under the scheme.

What are the restrictions under LRS?

• LRS restricts
  • buying and selling of foreign exchange abroad, or purchase of lottery tickets or sweep stakes, proscribed magazines and so on,
  • or any items that are restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000.
• Also, one cannot make remittances directly or indirectly to countries identified by the Financial Action Task Force as non-co-operative countries and territories.

News Summary: Liberalised Remittance Scheme

• Overall remittances by resident individuals under LRS have shot up by 40 per cent to $19.35 billion during the nine months ended December 2022 from $13.79 billion a year ago.
  • Remittances in 2022-23 are expected to exceed $19.61 billion registered in fiscal 2021-22.
• However, funds sent abroad by students under LRS declined by over 42 per cent in first nine months of FY 23.
  • The fall in outward student remittances is due to difficulty in getting visas and uncertainty over job scenarios amid the slowdown in major developed economies triggered by rising inflation and interest rates.
  • The rising cost of education due to the falling rupee also makes it difficult for students to pursue higher studies.
  • Among other countries, students from India also go to Russia and Ukraine for studies. After the Russia-Ukraine war, students are not going to these countries.
• The biggest jump in remittances was in overseas travel by Indians who took out $ 9.94 billion during the nine months ended December 2022 as air travel opened up after the pandemic.
  • Travel remittances were $ 6.90 billion during the previous fiscal 2020-21

Q1) What is the LRS remittance limit?

 LRS allows Indian residents to freely remit up to USD $250,000 per financial year for current or capital account transactions or a combination of both. Any remittance exceeding this limit requires prior permission from the RBI.

Q2) Who can remit funds using LRS?

 Only individual Indian residents are permitted to remit funds under LRS. Corporates, partnership firms, HUF, trusts, etc are excluded from its ambit. However, it is available to minors, provided that Form A2 is countersigned by the minor’s natural guardian.

Source: Remittances for overseas studies fall 42% in first 9 months of FY23 | RBI |Livemint