Concerned over funds sent abroad under the ‘maintenance of close relative’ category of the Liberalised Remittance Scheme (LRS), the Reserve Bank of India (RBI) has narrowed the definition of relatives to check the flow of funds.
Hence, funds under the ‘maintenance of close relative’ category can be sent only to immediate relatives such as parents, spouses, children and their spouses. This has brought about by defining ‘relatives’ under the Companies Act, 2013 instead of the same act of 1956.
RBI has introduced a system for daily reporting of individual transactions under the LRS by banks.
This enables banks to view remittances already made by an individual during the fiscal, thus improving monitoring and ensuring compliance.
Since the system uses the Permanent Account Number of the remitter to aggregate remitter-wise data, the central bank has made furnishing of PAN mandatory for such transactions.
RBI has aligned the definition of ‘relative’ with the definition given in Companies Act, 2013 instead of Companies Act, 1956. Hence, funds under the ‘maintenance of close relative’ category can be sent only to immediate relatives such as parents, spouses, children and their spouses.
Outward remittances under maintenance of close relatives shot up to almost $3 billion in 2017-18 from a mere $174 million in 2013-14. In fact, funds sent under this category have more than doubled since 2015-16. Overall outward remittances under LRS went up to $11 billion from $1 billion in the same period.
Under LRS, all resident individuals can freely remit $250,000 overseas every financial year for a permissible set of current or capital account transactions.
Remittances are permitted for overseas education, travel, medical treatment and purchase of shares and property, apart from maintenance of relatives living abroad, gifting and donations. Individuals can also open, maintain and hold foreign currency accounts with overseas banks for carrying out transactions.
However, the rules do not allow remittances for trading on the foreign exchange markets, margin or margin calls to overseas exchanges and counterparties and the purchase of Foreign Currency Convertible Bonds issued by Indian companies abroad. Sending money to certain countries and entities is also barred. Under LRS, people can’t send money to countries identified as ‘non-cooperative’ by the Financial Action Task Force. Remittances are also prohibited to entities identified as posing terrorist risks.