Asset Management and Investment
Advising on Regulatory Aspects of Transferring Funds Abroad
It is important to note that transferring funds from one country to another country is regulated by the country from where the funds are transferred. The penal provisions in respect of transferring the funds are stringent moreover they are closely monitored by the government. It is therefore important that the person who is transferring the funds adheres to the rules and regulations governing search transfer.
Some of the important points one has to keep in mind before transfer of funds under
- Whether sufficient funds are available in the bank account
- Weather the applicable tax has been paid on such funds
- Purpose of transferring the funds
- Weather the funds are transferred for investment purposes or for family expenses
- Weather the person receiving the funds is eligible to receive the funds
- What is the present foreign currency exchange rate
Based on the above factors one can decide on the funds transfer arrangement. It is also important to note that one has to consult the banker and seek guidance on documentation part. If the documentation conditions are not fulfilled it is possible that the funds may be blocked midway.
Another important aspect is whether to transfer the funds in to your own account or into the third party account. If the funds are transferred into the third-party account it is possible that you will not have any control over those funds.
Moreover, the return on investments may not be credited to your account if you don’t have a local account into the foreign country. Therefore, an important consideration before transferring the funds is to open your own account into the foreign country and then transfer those funds into your local account maintained with a bank in the foreign country and from there the funds can be transferred to the party where you are intending to invest. This will help the person transferring the funds in variety of ways and moreover it allows the flexibility to transfer and withdraw the funds asper the requirements.
Transfer of funds from India is governed by Foreign Exchange Management Act, 1999. RBI has introduced Liberalized Remittance Scheme (LRS) that governs the remittance of funds from India.
The Scheme was introduced on February 4, 2004, with a limit of USD 25,000. The LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions.
Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.
A resident individual can send remittances under the Liberalised Remittance Scheme (LRS) for purchasing immovable property outside India.
In case of remitter being a minor, the LRS declaration form must be countersigned by the minor’s natural guardian. The Scheme is not available to corporates, partnership firms, HUF, Trusts etc. The investor can retain and reinvest the income earned from portfolio investments made under the Scheme.
However, a resident individual who has made overseas direct investment in the equity shares and compulsorily convertible preference shares of a Joint Venture or Wholly Owned Subsidiary outside India, within the LRS limit, then he/she shall have to comply with the terms and conditions as prescribed under [Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations 2004 as amended from time to time] Notification No. 263/ RB-2013 dated August 5, 2013.
There are no restrictions on the frequency of remittances under LRS. However, the total amount of foreign exchange purchased from or remitted through, all sources in India during a financial year should be within the cumulative limit of USD 2,50,000.
Once a remittance is made for an amount up to USD 2,50,000 during the financial year, a resident individual would not be eligible to make any further remittances under this scheme, even if the proceeds of the investments have been brought back into the country.
MIA has a team of experts who are wellversed with the knowledge of laws and regulations governing the transfer of funds. For any further queries, please feel free to contact us…
