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The legal frame for the overseeing of foreign exchange transactions in India comes under the Foreign Exchange Management Act(FEMA), created in 1999 which came into effect from June 1, 2000. The Liberalized Remittance Scheme (LRS) was introduced under this act by the RBI in 2004. It is this part of FEMA that specifies the instructions regarding remittance of money outside India for the purpose of education. Since the time the scheme came into effect, it has undergone many revisions. Prior to August 2013, the annual limit under LRS was $200,000. However, due to the deteriorating current account deficit and volatility of the currency, the limit was reduced to $75,000. By the June of 2014, as the foreign exchange market was gradually becoming stable, the limit was increased to $125,000. In its recent statement regarding monetary policy (June 1st, 2015), the RBI had doubled the limit to $250,000.
Now let us take a look at the rules and regulations pertaining to higher studies from the latest RBI guidelines and alleviate the doubts regarding the financial aspects of outward remittance.
Liberalised Remittance Scheme (LRS) of USD 2,50,000
“ Under the Liberalised Remittance Scheme, all students who are resident Indians, 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. Further, resident individuals can avail of foreign exchange facility for the purposes mentioned in Para 1 of Schedule III of FEM (CAT) Amendment Rules 2015, within the limit of USD 2,50,000 only. “
The 10 Outward Remittance rules to be followed by Indian students studying abroad:
- The total remittance amount under LRS is $250,000. However in case of excess monetary requirements for the purposes of :
(i) Studies Abroad
(ii) Medical Expenses Abroad
(iii) Maintenance of a Close Relative Abroad
The LRS limit can be exceeded with the permission of the RBI on submission of the documents proving the need for the excess monetary requirements.
- All outward remittances made as gifts or donations fall within the purvey of LRS and cannot be accounted for as a separate remittance.
- For expenses related to education (studies abroad), an individual may be permitted to avail more than their limit of $250,000 under LRS if it is so required by the university or institute offering the course.
- Indian students who have taken a loan abroad when they were NRIs can return the same upon coming back to India under LRS.
- If an individual remits an amount under LRS in a financial year, then the updated limit for that individual would be reduced from $250,000 by the remitted amount.
- For the purpose of travel, a student may be allowed to purchase and carry foreign currency notes/coins only up to $3000, and balance in Forex travel card up to $7,000.
- In case of the remitter being a minor, the minor’s natural guardian must sign the LRS declaration form.
- In case of procuring a loan from an authorised dealer in India, a resident close relative of the non-resident Indian is eligible to pay back the loan.
- A resident in India can include non-resident close relative(s) as a joint holder(s) in their resident bank accounts as ‘former or survivor’. Nevertheless, the non-resident Indian close relatives are not allowed to handle the account within the duration of the resident account holders lifespan.
- A Non-Resident Indian (NRI), can be permitted to create an NRE/FCNR(B) account with their resident close relative within the parameters of the ‘former or survivor’ basis. The resident close relative is eligible to manage the account as Power of Attorney holder during the lifetime of the NRI/PIO account holder.
- Air Tickets would be a part of the traveller’s personal LRS limit of USD 2,50,000.
- There are no constraints as to the frequency of remittances under LRS.
Parents who have sent their wards for studies abroad are the largest users of the LRS, using this window to pay both the tuition fees and regularly meet the student’s living expenses. It has allowed large numbers of Indians to study abroad & diversify their portfolios.
A workaround for the LRS Limit :
Although the maximum limit for maintenance of a close relative is fixed at USD 250,000 under the LRS scheme, it may be possible to circumvent that ceiling if need be through the use of International Credit Cards (ICC).
- International Credit Cards (ICC) : There is no monetary limit set by the RBI for remittances, bounded within this service. The LRS ceiling will not apply to the use of ICC for making payments for meeting expenses while on a visit outside India.
- However, use of ICCs is prohibited for transactions specified under FEMA such as the purchase of lottery tickets, betting on race courses and banned magazines etc.
Remitting money under Liberalised Remittance Scheme
- Submission of a self-declaration form outlining the motive of your remittance.
- It is mandatory to furnish PAN card to make remittances under the scheme.
- A bank/AD2 Category Foreign Exchange dealer must be designated through which all remittances will be made.
- To begin the outward remittance available under the Liberalized Remittance Scheme, you can make use of ExTravelMoney.com, India’s biggest marketplace for remitting money abroad. Choose the bank/AD2 dealer to deal with and book the forex rate in real time. Pay directly to the chosen bank/AD2 dealer via NEFT/ RTGS/ Netbanking & confirm your decision to remit and the amount involved.
- The bank personnel will verify the KYC (Know your customer) documents & provide you with the Form A2. Form A2 is a declaration pertaining to the transaction which has to be filled with the complete and correct details.
Note: Some banks may insist customers present form 15CA/CB but this is not mandatory for overseas educational remittances.
“The documents 15CA/CB are not really required for overseas educational remittance transactions and have also been identified by the RBI as being dispensable. Based on the experience of our customers who have dealt with banks for LRS based remittance, the cost of getting these documents completed can be around Rs 3,000 – 6,000. This is one of the main reasons that they have instead opted to our online platform instead. We ensure that the process is completed as soon as possible, within 24 hours at max.” says George Zachariah, Co-Founder & COO of ExTravelMoney.com, an online solution that helps Resident Indians & NRIs to book foreign exchange and remit money abroad from the comfort of their home.
On return from a foreign trip, travellers are required to relinquish foreign exchange held in the form of currency notes and/or traveller’s cheques that have been not utilised, within 180 days. An exception to this rule is that residents can hold foreign coins without any limit which is a wise move on the whole by RBI. Otherwise, they would have the additional task of answering to the tirades of numismatics (Coin collecting) enthusiasts.
While studying abroad it is prudent to remain on the safe side of the law by taking special care to follow the necessary rules. Following these rules can ease your mind to a great extent which already would be under the responsibility of studying and trying to make ends meet. This would ensure that your experience outside remains smooth and pleasant.
Here is an exhaustive list of FAQs on the RBI site which might help throw more light on the matter.
For those who want to check out the original document released by RBI, you can find it here.