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Liberalised Remittance Scheme : Your gateway to global investment

Once upon a time it was impossible to make investments outside India. In fact, the access to foreign currency was so restricted that even the routine expenses abroad were a huge challenge.

The scenario transformed drastically in 2004 with the announcement of Liberalised Remittance Scheme (LRS) by the Reserve Bank of India.

Under LRS, we are allowed to remit foreign currency outside India, up to a specified limit, for any permitted Capital and / or Current Account transactions.

Salient aspects of the Liberalised Remittance Scheme are detailed below.

- The Scheme is for all resident individuals, including minors. 

- As per the latest RBI rules, up to USD 250,000 i.e. around Rs.1.5 crores (or equivalent any other freely convertible foreign currency) can be remitted abroad per person per financial year. 

- If desired, family members can consolidate their remittances.

- Once the specified limit is achieved, no further remittances would be permitted, even if some amount is repatriated back to India.

- Under "capital account" transactions, you are permitted to buy equity shares (both listed and unlisted), bonds / debentures, mutual funds, property, ESOPs, venture funds, etc. outside India... without the prior approval of RBI. 

- You can even set up Joint Ventures or Wholly Owned Subsidiaries overseas for bonafide businesses.

- You can also open and maintain foreign currency accounts with banks aboard.

- There is no need to repatriate the income earned on such investments. You can retain and reinvest the same overseas.

- Till recently, the "current account" transactions — such as private travel, business travel, studies, employment, emigration, medical treatment, etc. — were covered separately [under Schedule III to Foreign Exchange Management (Current Account Transactions) Rules 2000]. Further, separate limit was prescribed for each such transaction. 

However, in its Feb 3, 2015 Monetary Policy, RBI has subsumed all these transactions under the Liberalised Remittance Scheme limit.

- Even the gifts and donations are now subsumed under the limit available in LRS.

- Important "prohibited transactions" include trading in foreign currency; investing in FCCBs issued by Indian companies overseas; lottery tickets; proscribed magazines; call back telephone services; for margins or margin calls to overseas exchanges; remittance to Bhutan, Nepal, Mauritius, Pakistan and specified non co-operative countries; to individuals / entities identified as posing a risk of terrorism; and some more as restricted under Sch I and II of FEMA (Current Account Transactions) Rules.

- PAN No. is mandatory for making such remittances outside India.

- Subject to the overall limit, you can do as many foreign currency transactions as you wish.

Of course, just because the facility to remit money abroad and invest overseas exists under the Liberalised Remittance Scheme, doesn't mean you should blindly jump at it. All the standard due diligence that is necessary for making investments in India, must be followed for overseas investments too.

But, more importantly, you have to first assess whether investing abroad is in line with your financial profile or not; and the tax implications too. Remember, you would be additionally exposed to the Country Risk and the Currency Risk when you invest outside India.

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