Transferring Money from India to Abroad

In today's globalized world, people frequently travel, study, or have family members residing outside of India. This often leads to situations where funds need to be transferred across borders for various reasons. To facilitate such transactions, the Reserve Bank of India (RBI) has established the Liberalized Remittance Scheme (LRS) under FEMA regulations. In this blog, we will explore the ins and outs of transferring money from India abroad and shed light on the rules, regulations, and procedures involved.

Reasons for Transferring Money Abroad: There are numerous scenarios where individuals might need to transfer money outside of India. These include:

• Education: Funding tuition fees or expenses for children studying abroad.

• Medical Assistance: Seeking medical treatment overseas.

• Investment: Investing in foreign assets or ventures.

• Family Support: Helping family members stranded outside of India.

• Personal Expenses: Spending on foreign vacations or purchases.

Understanding the Liberalized Remittance Scheme (LRS): The LRS is a framework established by the RBI to enable residents to transfer funds from India to non-resident individuals. Under this scheme, a resident individual can remit up to $250,000 USD per year for permissible capital and current account transactions. It is essential to note that LRS is applicable to residents only, and NRIs cannot utilize this scheme.

Different Types of Transactions Covered Under LRS: There are four types of transactions involving residents and non-residents:

• Resident to Resident: Allowed under LRS, with no restriction.

• Resident to Non-Resident: Permissible under LRS, with an annual limit of $250,000 USD.

• Non-Resident to Non-Resident: Not covered under LRS.

• Non-Resident to Resident: Not covered under LRS.

Capital Account vs. Current Account Transactions: It is crucial to differentiate between capital account and current account transactions. Capital account transactions involve the creation or alteration of assets and liabilities, such as investments or loans. On the other hand, current account transactions include regular expenses like travel, medical, education, etc.

Documentation and Tax Implications: For LRS transactions, individuals need to fill out Form A2, providing details such as the recipient's name, account, currency, and purpose of remittance. Additionally, certain transactions may require Form 15CA and 15CB to report the tax implications.

TCS (Tax Collected at Source) on Remittances: Effective from October 2020, a 5% TCS is collected by the authorized dealer on LRS transactions exceeding INR 7,00,000 per financial year. For education-related remittances, the TCS rate is reduced to 0.5% upon providing evidence of an education loan.

Seeking Professional Guidance: Given the complexity and evolving nature of regulations, it is advisable to seek the guidance of a qualified Chartered Accountant before initiating any remittance. A professional can ensure compliance with the rules, identify permitted transactions, and help navigate any tax implications.

Conclusion: The Liberalized Remittance Scheme has simplified the process of transferring money from India abroad. Understanding the rules and regulations and seeking professional advice when needed ensures smooth and compliant cross-border transactions. Whether it's funding education, supporting family members, or investing in foreign assets, the LRS empowers residents to handle their financial needs effectively.