If you are planning to diversify your portfolio and looking for investment outside India, you need to know about the Liberalised Remittance Scheme.
In a move to simplify and liberalise foreign exchange in India, the Reserve Bank of India in 2004 launched the Liberalised Remittance Scheme.
In this scheme all resident individuals, including minors, are allowed to freely remit up to $ 250,000 per financial year (April - March) for any permissible current or capital account transaction or a combination of both.
Say for example, a resident individuals can acquire and hold immovable property or shares or debt instruments or any other assets outside India, without prior approval of the Reserve Bank.
Individuals can also open, maintain and hold foreign currency accounts with banks outside India for carrying out transactions permitted under the Scheme. The Scheme can also be used for remittance of funds for acquisition of ESOPs.
However, remittances for gift and donation can not be made separately and have to be made under the Scheme only. Accordingly, resident individuals can remit towards gifts and donations up to USD 200,000 per financial year under the Scheme.
Update: As of April 13, 2018, Authorised Dealers have to provide a day to day reports on transactions made by the residents. Earlier the central bank relied on declarations made by the remitters. The change is however made to facilitate the monitoring of the transactions under this scheme.
Things prohibited under the scheme:
i) Remittance for any purpose specifically prohibited under the scheme like the purchase of lottery tickets/sweep stakes, proscribed magazines, etc. or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000;
ii) Remittance from India for margins or margin calls to overseas exchanges / overseas counterparty;
iii) Remittances for the purchase of FCCBs issued by Indian companies in the overseas secondary market;
iv) Remittance for trading in foreign exchange abroad;
v) Remittance by a resident individual for setting up a company abroad;
vi) Remittances directly or indirectly to Bhutan, Nepal, Mauritius and Pakistan;
vii) Remittances directly or indirectly to countries identified by the Financial Action Task Force (FATF) as "non co-operative countries and territories", from time to time; and
viii. Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.
What about accrued interest/dividend on investment?
The resident individual investors can retain and re-invest the income earned on investments made under the Scheme. The residents are not required to repatriate the funds or income generated out of investments made under the Scheme.
How can you remit?
- The individual will have to designate a branch of an Authorised Dealer through which all the remittances under the Scheme will be made.
- The applicants should have maintained the bank account with the bank for a minimum period of one year prior to the remittance.
- If the applicant seeking to make the remittance is a new customer of the bank, Authorised Dealers should carry out due diligence on the opening, operation and maintenance of the account.
- Further, the AD will obtain bank statement for the previous year from the applicant to satisfy themselves regarding the source of funds.
- If such a bank statement is not available, copies of the latest Income Tax Assessment Order or Return filed by the applicant may be obtained.
- He has to furnish an application-cum-declaration in the specified format (Annex) regarding the purpose of the remittance and declare that the funds belong to him and will not be used for the purposes prohibited or regulated under the Scheme.
- Once a remittance is made for an amount up to USD 250,000 during the financial year, he would not be eligible to make any further remittances under this scheme, even if the proceeds of the investments have been brought back into the country.
The remittances can be made in any freely convertible foreign currency equivalent to USD 250,000 in a financial year.
So, this is one of the avenue where you can put your funds to buy property or make investment abroad without much hassle.