Liberalized remittance scheme (LRS) has been introduced by the RBI in order to facilitate the Resident individuals to remit funds outside India with specific limit of up to $250000 USD per financial year. Prior to the implementation LRS no person resident in India shall acquire, hold, own, possess or transfer any foreign security or any immovable property situated outside India (U/S.4 of FEMA). Provided that the central government may, in public interest and in consultation with RBI impose reasonable restriction for current account transaction as may be prescribed.

LRS was introduced on 4 th February 2004, this is solely implemented to facilitate Resident individuals (RI) of India. Resident means a person resident in India as per FEMA. Once an individual is resident under FEMA can avail benefit of LRS. However LRS is not available to corporate, partnership firms, trust, HUF etc. A RI can invest up to $250000 per financial year and shall report the same to RBI in FORM ODI Part-I within 30 days from the date of such investment. When it comes to the field of investment in abroad a RI can invest in any bonafide business activity other than in real estate business, banking business and the business of financial service activity.

The resident individual shall not be on the Reserve Bank’s Exporters Caution List or List of defaulters to the banking system or under investigation by any investigation / enforcement agency or regulatory body. Also an RI is prohibited from making direct investment in JV or WOS located in countries identified by Financial Action Task Force (FATF) as “Non-co-operative countries and territories” or as notified by the RBI. Another important issue to be focused is that the JV/WOS shall be an operating entity only and no step down subsidiary is allowed to be acquired or set up by the JV/WOS.

Post Investment activities:

In respect to post investment if there is any alteration in shareholding pattern of the JV or WOS may be reported to the designated AD within 30 days including reporting in the annual performance Report as required to be submitted under the regulation. In case of disinvestment an RI / IP may fully or partly way of transfer / sale or by way of liquidation/merger of the JV or WOS. Disinvestment shall be allowed after one year from the date of making first remittance. No write off shall be allowed in case of resident individual.

The disinvestment by the resident individual may be reported by the designated AD to the Reserve Bank in Form ODI Part IV within 30 days of receipt of disinvestment proceeds.

Reporting Requirements:

After the investment is made there are certain reporting requirements to be taken care and the required points are as follows:

◘ Share certificate or proof of investment shall be submitted with the authorised dealer bank within six months from date of investment.

◘ In case of any change in the business activity or alteration in the shareholding pattern shall be reported to RBI within 30 days from the date of approval by the competent authority of WOS/JV.

◘ Annual performance report shall be submitted with the RBI on or before 31st December of every year.

◘ Annual return on Foreign Assets and liabilities shall be filed on or before 15th of July every year.

◘ All dues receivable as royalty dividend etc. shall be repatriated within 60 days of its falling due.

Key Points:

LRS – Liberalized remittance scheme

FEMA – Foreign Exchange Management Act

RBI – Reserve Bank Of India

RI – Resident Individuals

HUF– Hindu Undivided Family

FATF – Financial Action Task Force

JV – Joint Venture

WOS – Wholly Owned Subsidiary