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Monday, April 25, 2016

Liberalised Remittance Scheme

 The Panama Papers episode has brought to limelight methods through which Indians send money overseas, including the Liberalised Remittance Scheme (LRS). Read on to find out more about the scheme.

1. What is the Liberalised Remittance Scheme?

The Liberalised Remittance Scheme or LRS was introduced in February 2004 to facilitate resident individu als to freely remit up to $25,000 per calendar year for certain select purposes such as making deposits, purchase of immovable property, equity investment, gifts, donations, travel, main tenance of relatives, medical treatment and for studies abroad.

2. How did it start?

Between 2000 and 2005, India had abundant foreign capital inflows.

This resulted in not only strengthening of the rupee against the dollar but also added the challenge of managing flows for the central bank. To deal with plentiful inflows, the Reserve Bank of India decided to allow some limited remittances under select current account and capital account heads.

3. How has the scheme evolved over the years?

As the country's foreign ex change reserves position be came more comfortable, the limit was enhanced to $50,000 per financial year in December 2006, and then to $1,00,000 per financial year in May 2007.The remittance threshold was further raised to $2,00,000 per financial year in September 2007 and later to $250,000 per year. When the rupee started weakening in August 2013 and resulted in drain of reserves, the limit was temporarily reduced to $150,000 per year.

4. Why is LRS in news these days?

The talk around LRS has gained ground on account of the Panama Papers episode. It is leak of over 11 million files from the database of Panamanian law firm Mossack Fonseca that helped clients across the world set up offshore companies. The papers reveal details of over 500 Indians with links to such offshore firms. The Modi government has set up a multi-agency probe which is expected to look in to tax evasion, money-laundering and drug deals.

5. What is RBI's stance on issue?

In a recent media briefing, RBI governor Raghuram Rajan said that the central bank is part of the investigative team that is going to look into these matters. He said it is important to note that there are legitimate reasons also to have accounts outside.The LRS scheme allows you to take money out, and that the central bank will have to see what is legitimate and what is not legitimate, Rajan said.

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