A Guide on International Money Transfer Rules under Foreign Exchange Management Act (FEMA)

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Money Transfer

The Reserve Bank of India (RBI) regulates the incoming and outgoing of foreign exchange transactions and they have laid out some rules as well as regulations that come under Foreign Exchange Management Act (FEMA) for Money Transfer.  The purpose of the outward remittance is required under the FEMA by the Reserve Bank of India. The restrictions for transfers vary according to the specific laws and rules of the Foreign Exchange Management Act for various bodies.

The rules have become softer and easier for people as times passed by in regards with international money transfers. People may transfer cash overseas without Foreign Exchange Management Act or Reserve Bank of India’s authorisation in just about any authorised currency denomination. If money is not to be dispatched abroad in an illegal or forbidden schedule, the resident is not required to seek authorisation of up to USD 2,50,000 for transfers overseas for each financial year. However, RBI’s approval is needed for companies to make outward transfers.

You can use online services like online forex & remittance platforms to send money abroad. Such platforms provide the best currency rates and you can end up saving a lot of money in the end.

In many circumstances, international money transfers from India may be needed:

  1.  An individual has to join a company overseas and some initial capital is needed overseas.
  2. When an individual is joining that company, in case the individual’s family members will be going with him/her overseas, then it indicates that the family may need more capital to stay afloat overseas.
  3. An individual or someone from his/her family has to get a medical operation done abroad.
  4. An individual is heading off to a foreign country for a personal visit
  5. An individual is going through immigration phase and as soon as he/she migrates, foreign capital would be needed in this case.
  6. An individual is heading off to a foreign nation for his/her studies.
  7. An individual has to pay for any sort of goods and services provided by a global company and for that currency conversion is needed.

Various schedules of Foreign Exchange Management Act (FEMA) with relation to international money transfers:

International payments from India are subject to the schedule of the Foreign Exchange Management Act (FEMA) Act and are regulated. There are three schedules that come under the FEMA and they are called Schedule 1, Schedule 2 and Schedule 3. 

  • FEMA Act schedule 1 addresses transfers forbidden by the Government of India for sending payments from abroad.
  • A foreign transfer payment requiring government approval are set out in Schedule 2 of the FEMA Act.
  • The last schedule of FEMA identifies the foreign payments which the RBI must authorise.

Liberalised Remittance Scheme (LRS)

The Reserve Bank of India has drafted a scheme in respect to foreign money transfers which is known as the Liberalised Remittance Scheme. It enables residents to send money for investment and expenses to some other nation throughout a financial year. Residents may send up to $250,000 per fiscal year under the current conditions.

This can be used for several purposes that we have discussed above and there is a list of purposes set out by the RBI as well. Listing the purpose of your international money transfer is mandatory set by the RBI regulations.

It is obligatory for Indians or foreign nationals to provide a PAN number to wire funds abroad under the LRS system.

FEMA was launched by the Reserve Bank of India in 2004. Originally, the payment limit for a financial year was 25k US dollars. It was later refined by RBI to USD 2,50,000 a few years back in 2014. This same LRS scheme can only be used by individuals and single proprietors and not by corporate groups, corporations, trusts, partnership companies.

Non-Resident Ordinary account (NRO) account limits for NRIs

Indians who are not residing in India can open accounts which are called NRO (Non-Resident Ordinary account). The most usable way for NRO accounts is to move funds abroad through NRIs. The limit is USD 1 lac per financial year for international payments from an NRO account.

The owner of the account would have to present several forms like 15 CA to send money from that particular account. For authorised payments you can access the form from the approved bank’s site and the transfer process can be performed on the internet.  But when specific authorizations are needed or if a transfer falls within scheduled categories, this same account owner or designated Chartered Accountant would have to attend the local bank individually in order to submit the application forms and authorizations.

In India, many firms based out of foreign countries create wealth.  These revenues can be transferred to the country of origin. There are a few sectors like defence which may be subject to period locks. International companies operating in India have to follow these rules in relation to foreign payments (in and out both):

  • A global firm can send revenues, profits and dividends (from operations or investments) accrued in India after payment of relevant tax to the Government of India. 
  • An accredited cash flow and profit and loss statement and other financial sheets must be maintained by the firm or that company. A Firm is subject to foreign corporation operations under the Company Act of India, 1956.

Also Read: How Digital Transformation Is Impacting Insurance Industry

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