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In last month, RBI had come out with a Circular no. 24 dated 14th August, 2013, thereby reducing the limit of remittance by resident individual from USD 200,000 to USD 75,000 per financial year for any permitted current and/ or capital account transactions.
In this regard, Reserve Bank has been receiving queries from the various stakeholders and Authorised Dealer banks as the circular no 24 led to some confusion with regard to transaction limits. Therefore, RBI has come out with some clarifications on LRS by issuing Circular no. 32 dated 4th September 2013. Clarifications issued by RBI under LRS are as follows:
- LRS can be used to acquire shares of both listed and unlisted overseas companies.
- Remittances towards gift and donation as described in Schedule III of Foreign Exchange Management (Current Account Transactions) Rules, 2000 by a resident individual is included in the limit of USD 75,000 per financial year under the LRS
- Following remittances as described in Schedule III of Foreign Exchange Management (Current Account Transactions) Rules, 2000 can be made by resident individual over and above/ in addition to the annual limit of USD 75,000 permissible under LRS :
- Remittances for meeting expenses for medical treatment abroad up to the estimate from a doctor in India or hospital/ doctor abroad without any RBI approval.
- Remittances up to USD 25,000 for maintenance expenses of a patient going abroad for medical treatment or check-up abroad or for accompanying as attendant to a patient going abroad for medical treatment/ check-up without any RBI approval.
- Remittances for studies up to the estimates from the institutions abroad or USD 100,000, whichever is higher without any RBI approval
- All other remittances (other than donation and gifts) as stipulated under Schedule III of Foreign Exchange Management (Current Account Transactions) Rules, 2000
- Moreover, a resident individual can also carry out other permissible current account transactions [transactions which are not explicitly prohibited under Schedule I, or restricted under Schedules II and III, to Foreign Exchange Management (Current Account Transactions) Rules, 2000] without any limits through an AD Bank in India subject to the AD bank verifying the bonafides of the transaction.
- Notification No. FEMA.263/RB-2013 dated 5th March 2013, [concerning the Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2013] , is effective from the 5th August 2013 i.e. the day of publication in official gazette.
- Under the Circular No. 24 dated 14th August, 2013, it’s been clarified that no remittance under LRS shall be made/ used for acquisition of the immovable property directly/ indirectly outside India.
It’s been further clarified by Circular No. 32 dated 4th September 2013., that resident individual can still remit upto USD 75,000 per financial year for acquiring immovable property, if any contract is already entered into for acquiring such immovable property on or before 14th august 2013 and subject to satisfaction of the genuineness of the transactions by the AD bank. Such cases are required to be immediately reported post facto to the Reserve Bank of India by the AD banks.
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External Commercial Borrowings (“ECB”) refer to commercial loans which can be in the form of buyer’s credit, bank loans or securitized instruments such as floating rate notes and fixed rate bonds. According to the current ECB guidelines (“guidelines”), the borrowings were not allowed to be used for the general corporate purposes. However, now the RBI vide A.P. (DIR Series) Circular No.31,dated 4th September 2013 has relaxed this restriction specifically for ‘general corporate purpose’ and therefore the ECB may be raised, under approval route by the eligible borrowers from their foreign equity holder, for general corporate purposes which is subject to the following conditions:
- The foreign equity holder should directly hold at least 25% of the paid up equity capital in the company;
- The minimum average maturity for such ECBs must be 7 years;
Further the repayment of the principal amount of ECB availed shall commence only after the completion of maturity period i.e. 7 years. The RBI has specified that no prepayment of ECB raised for ‘general corporate purposes’ shall be allowed;
However, it should be noted that this relaxation of end use of the availed ECB is only applicable for general corporate purpose and not on other restricted aspects covered in the guidelines like on-lending to their group companies or step-down subsidiaries in India.
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| The Reserve Bank of India has come out with measures to rationalize the regulations governing the Overseas Direct Investment. Recently, RBI had issued a Circular No.23 dated August 14th 2013 for reduction of limit for overseas direct investment (ODI) from 400% to 100% of the net worth of the Indian party as on date of last audited balance sheet under the Automatic route. The RBI via A.P. (DIR Series) Circular No.30 dated 4th September 2013 has decided to retain the limit of 400% of the net worth of the Indian Party for the financial commitments funded by way of eligible External Commercial Borrowing (ECB) raised by the Indian Party. It is also clarified that all the financial commitments made on or before August 14, 2013, in compliance with the earlier limit of 400% of the net worth of the Indian Party under the automatic route will continue to be allowed. In other words, such investments, in compliance with the ODI policy, shall not be subject to prior approval from the RBI.
It is also noted that the limit of 100% of the net worth shall not apply to the Indian Party making ODI to the extent of funding of financial commitments out of EEFC account of the Indian Party or funding out of ADRs/GDRs proceeds.
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