Why in the News?

The Reserve Bank of India (RBI) has broadened the regulations governing remittances to International Financial Services Centres (IFSCs) under the Liberalised Remittance Scheme (LRS). The RBI’s circular authorizes “authorised persons” to facilitate remittances for all permissible purposes under LRS to IFSCs.

About Liberalised Remittance Scheme (LRS)

• LRS is governed by the Foreign Exchange Management Act (FEMA) 1999, regulated by the Reserve Bank of India (RBI).
• The scheme was introduced by the RBI in 2004 to facilitate outward remittances from India.
• LRS allows resident individuals, including minors, to remit a specified amount of money abroad each financial year (April – March).
• Currently, individuals are allowed to remit up to USD 250,000 per financial year under LRS.
• Funds remitted under LRS can be used for permissible current or capital account transactions, or a combination of both.
• Permissible Uses:
  • Expenses related to travel (private or for business).
  • Medical treatment abroad.
  • Payment of fees for education abroad.
  • Gifts and donations.
  • Maintenance of close relatives.
  • Investment in shares, debt instruments, and immovable properties overseas.
• Accounts: Individuals can open and maintain foreign currency accounts with banks outside India for transactions permitted under LRS.
• Exclusions: LRS is NOT available to corporations, partnership firms, Hindu Undivided Families (HUFs), trusts, etc.

Prohibited Transactions:

• Remittances for activities prohibited under Schedule-I of FEMA, such as purchase of lottery tickets, sweepstakes, proscribed magazines, etc.
• Trading in foreign exchange abroad.
• Remittances to countries identified as non-cooperative by the FATF.
• Remittances to individuals/entities identified as posing a terrorism risk by the RBI.

Significance of the move

• The RBI’s decision reinforces GIFT IFSC’s position as a prominent international financial services hub.
• By broadening the scope of LRS, GIFT IFSC aims to attract more diverse investments and transactions, contributing to the growth of India’s financial sector.

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