Don't worry about changed LRS norms if you're making genuine transactions

The Reserve Bank of India (RBI) has tightened the norms for outward remittance of money under the Liberalised Remittance Scheme (LRS). The definition of relatives to whom outward remittances can be made has been narrowed. Furthermore, earlier there was no insistence on submitting the Permanent Account Number (PAN) for making current account transactions of up to $25,000. This has now been made mandatory for all remittances, irrespective of the amount. 

The applicable definition of ‘relatives’ for remittances under LRS will henceforth be according to the Companies Act, 2013, instead of the Companies Act, 1956. The Companies Act, 2013 includes eight relationships, whereas the Companies Act, 1956 included almost 30 relationships. According to Section 2(77) of the Companies Act, 2013, ‘relatives’ will include only father (including step-father), mother (including step-mother), son (including step-son), son’s wife, daughter, daughter’s husband, brother (including step-brother) and sister (including step-sister). The Companies Act, 1956 defined relatives based on the earlier joint family concept, whereas the Companies Act, 2013 has taken into account the modern nuclear family size and hence reduced the number of people included under the definition of relative.

Under LRS, all resident individuals, including minors, are allowed to remit freely up to 250,000 per financial year for any permissible current or capital account transaction, or a combination of both. Individuals can avail of foreign exchange facility for the purposes of the limit of $250,000 only. Earlier, the use of PAN was not needed for making current account transactions up to $25,000. This has now been made mandatory. "The introduction of PAN for every current account transaction could be meant to curb black money transactions," says Sudarshan Motwani, chief executive officer, BookMyForex. The notification issued by the RBI with regards to harmonisation of data and definitions said: "It has been decided that furnishing of PAN, which hitherto was not to be insisted upon while putting through permissible current account transactions of up to $25,000, shall now be mandatory for making all remittances under LRS." 

According to industry experts, the LRS facility might have been used for other purposes as the outward remittances under maintenance of close relatives shot up from $174 million in FY14 to $2.9 billion in FY18. Says Amit Saxena, managing director and chief executive officer, Unimoni (previously UAE Exchange): "There could have been concern that the Liberalised Remittance Scheme was being used for commercial purposes. It now accounts for more than a fourth of the total outward remittances."

Experts believe that the changes brought about by the RBI will have limited impact on those looking to send money abroad for the maintenance of their relatives. "The limits are so high that no genuine customers will be impacted by the changes made by the RBI. These changes are directed more towards the grey market," says Motwani. Furthermore, he says, the restriction in the definition of 'relatives' will check any abuse of the scheme for commercial purposes.