The Reserve Bank of India had announced a Liberalized Remittance Scheme in February 2004 as a step towards further simplification and liberalization of the foreign exchange facilities available to resident individuals. As per the Scheme, resident individuals may remit up to USD 250,000 per financial year for any permitted capital and current account transactions.
Q1. Provide an illustrative list of capital account transactions permitted under Liberalised Remittance scheme?
The remittance under the Scheme is available to the resident individuals for any permitted current or capital account transactions or a combination of both. Under the Scheme, resident individuals can acquire and hold immovable property or shares or debt instruments or any other assets outside India, setting up Wholly Owned Subsidiaries and Joint Ventures outside India for bonafide business purpose, extending loans including loans in Indian Rupees to Non-Resident Indians who are relatives as defined in Companies Act,1956,without prior approval of the Reserve Bank. Individuals can also open, maintain and hold foreign currency accounts with banks outside India.
The remittance facility under the Scheme is not available for the following:
i) Remittance for any purpose specifically prohibited under Schedule-I or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000.
ii) Remittances made directly or indirectly to Bhutan, Nepal, Mauritius or Pakistan.
iii) Remittances made directly or indirectly to countries identified by the Financial Action Task Force (FATF) as “non co-operative countries and territories” from time to time.
iv) 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.
v) Remittance from India for margins or margin calls to overseas exchanges / overseas counter party is not allowed under the Scheme.
Q2. Whether this facility is in addition to existing facilities detailed in Schedule III under remittances?
The limit of USD 2,50,000 per Financial Year (FY) under the Scheme also includes/subsumes remittances for current account transactions (viz. private visit; gift/donation; going abroad on employment; emigration; maintenance of close relatives abroad; business trip; medical treatment abroad; studies abroad) available to resident individuals under Para 1 of Schedule III to Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015 dated May 26, 2015. Release of foreign exchange exceeding USD 2,50,000, requires prior permission from the Reserve Bank of India. But in case of Emigration, Medical Treatment and Studies Abroad, remittances in excess of the limits can be permitted by the Authorised dealer subject to submission of Documentary evidence.
Q3. Whether minor individuals/HUF/Firms/Co can also avail of the remittance facility?
The facility is available to all the resident individuals including minors. In case of remitter being a minor, 4the Form A2 must be countersigned by the minor’s natural guardian. However, this facility is not available to HUFs/Cos/Firms.
Q4. Whether remittances under the facility can be consolidated in respect of family members?
Remittances under the facility can be consolidated in respect of family members subject to the individual family members complying with the terms and conditions of the Scheme. However, clubbing is not permitted by other family members for capital account transactions such as opening a bank account/investment/purchase of property, if they are not the co-owners/co-partners of the overseas bank account/ investment/property. Further, a resident cannot gift to another resident, in foreign currency, for the credit of the latter’s foreign currency account held abroad under LRS.
Q5. Whether the Scheme can be used for purchase of objects of art (paintings etc) either directly or through auction house?
Remittances under the Scheme can be used for purchasing objects of art subject to the provisions of other applicable laws such as the extant Foreign Trade Policy of the Government of India
Q6.Whether a resident individual can invest in units of Mutual Funds, Venture Funds, unrated debt securities, promissory notes etc under this scheme?
A resident individual can invest in units of Mutual Funds, Venture Funds, unrated debt securities, promissory notes, etc under this Scheme. Further, the resident can invest in such securities out of the bank account opened abroad under the Scheme.
Q7. Whether a resident individual can make remittance towards margin money to overseas exchanges/overseas counterparty.
Remittance from India for margins or margin calls to overseas exchanges / overseas counterparty is not allowed under the Scheme
Q8. Whether an individual, who has availed of a loan abroad while a non-resident, can repay the same on return to India, under this Scheme as a resident?
This is permissible.
Q9. Whether it is mandatory for resident individuals to have PAN number for sending outward remittances under the Scheme?
It is mandatory to have PAN number to make remittances under the Scheme. However, PAN card need not be insisted upon for remittances made towards permissible current account transactions up to USD 25,000.
Q10.Whether it is mandatory for resident individuals to have bank account?
The applicant should have maintained the bank account with the bank for a minimum period of one year prior to the remittance. If the customer is new, he/she should submit bank statement of previous bank for the previous year.
Q1. What are the RBI regulations for import of goods?
The Importer should have a bank account and bank to adhere to KYC norms
The importer should possess IEC number
The importer should have proper import license, wherever necessary
Q2. What is the time limit for settlement of Import payments?
Remittance against imports should be completed not later than six months from the date of shipment
Q3. What is the maximum quantum of advance remittance for imports permitted?
USD5 million subject to obtaining foreign bank guarantee from the recipient of advance remittance (may be waived by the banks as per their internal policy), if advance remittance exceeds USD100,000 for import of goods and USD500,000 for import of services
Q4. What is the time limit for import of goods when advance remittance is made?
Physical import of goods into India should be made within 6months (3 years in case of capital goods) from the date of payment.
Q5. Can an importer receive import documents directly from overseas suppliers?
Yes, if value of the import does not exceed the value equivalent to USD300,000. However, there is no value limit incase of imports by Status Holder Exporters,100%EOU/Units in SEZ, limited companies psuS.
Q6.Can advance payment be made for import leg of Merchanting Trade?
Yes. However payment for export leg has to be received within the four months from the date of advance remittance. All conditions in Q3 will be applicable.
Q7. Can an importer avail buyers’ credit for imports under Merchanting Trade?
Q8. Can payment for export leg be received earlier and payment for import leg be made at a later date under Merchanting Trade?
Yes. Where the payment for export leg precedes the payment for import leg, banks should ensure that liability for the import leg is extinguished by the payment received for the export leg, without any delay.
Q9. Is it necessary that export leg should be in place before entering into import leg of Merchanting Trade Transaction?
Yes. Since terms of import and export legs are correlated export leg has to be in place before undertaking import leg.
Q10. Is it necessary export leg of the transaction should be backed by LC of a prime bank under MTT?
No. Export leg of the MTT may be backed by confirmed order or LC. However, if the customer requires establishing import LC, export leg has to be backed by LC of a Prime Bank.
Q11. What is buyers’ /suppliers’ credit?
Indian importers can arrange for short term finance by way of buyers’ credit/suppliers’ credit for imports into India.
Under buyers’ credit the buyer borrows from a bank abroad or overseas branch of an Indian bank and settles payment for imports. The buyers credit is available upto 1 year for import of raw material and upto 5 years for import of capital goods. But the bank will issue letter of comfort for a maximum period of 3 years for import of capital goods.
Under suppliers’ credit the importer gets goods on credit basis and is required to pay at a later date as per the credit terms. The supplier will raise the finance against the bills drawn on the buyers with or without recourse to him.
Rupee Export Credit:
Q1. What is meant by Packing Credit?
Packing Credit is pre shipment finance, which means any loan or advance granted to an exporter for financing the purchase, processing, manufacturing or packing of goods prior to shipment / working capital expenses towards rendering of services for export from India.
Q2. Whether Packing Credit advance be available for Merchanting Trade?
No. Export credit at concessive rate of interest is not available for Merchanting Trade
Q3. What is the period of advance?
The period of advance depends upon the time required for procuring, manufacturing or processing and shipping the relative goods.
Q4. What is the procedure for liquidation of Packing Credit?
Packing Credit advance has to be adjusted by purchase, discount of export bills i.e, by converting pre-shipment advance to post-shipment advance.
Q5. Can a Packing Credit advance be adjusted out of balance held in EEFC /Rupee accounts?
Yes, provided export bill is submitted and sent on collection basis. To the extent of the value of such bill Packing Credit advance can be adjusted out of Rupee funds/ funds in EEFC a/c.
Can a supplier to exporter is eligible for Packing Credit advance?
Yes, manufacturer suppliers whose goods are exported through STC/MMTC or other export houses, agencies etc or Export Order Holders are eligible for Packing Credit advance subject certain terms & conditions.
Q7. What are the types of post- shipment advance?
Post-shipment advance can mainly be taken in the form of
Export bills purchased/discounted/negotiated
Advances against bills for collection
Advances against duty drawback receivable from the Government.
Q8. How the post-shipment advance is adjusted?
Post-shipment credit is to be liquidated
By the proceeds of export bills received from abroad in respect of goods exported/ services rendered
Balances in EEFC account*
From the proceeds of any other unfinanced (collection) bills*
Export Credit in Foreign Currency:
Q1. Whether separate credit limits are required for export credit in foreign currency?
No, the scheme is an additional window for providing pre-shipment credit to Indian exporters at internationally competitive rates of interest. Instructions with regard to Rupee Export Credit apply to export credit in Foreign Currency also mutatis mutandis.
Q2. What are the options available to avail export finance in foreign currency?
Exporter has an option
To avail of pre-shipment credit in rupees and then the post-shipment credit either in rupees or discounting of export bills in foreign currency
To avail of pre-shipment credit in foreign currency and discounting of the export bills in foreign currency
To avail of pre-shipment credit in rupees and then convert drawals into PCFC for the balance period based on the availability of forex funds at the bank