Using LRS to Buy Property Abroad
Many individuals might have heard the term “LRS” (Liberalised Remittance Scheme), and if you want to know what is it exactly and how does it affect you? Well, the Liberalised Remittance Scheme, which is also known as LSR is a platform for Indian residents who are interested in purchasing property overseas, who wants to send funds out of India, and who prefer to invest in doing business overseas.
The LRS is the only method that allows you to do in this way that is why it is crucial to learn how this method actually works. However, it may seem to be difficult initially, the LRS in fact, it makes things easier in a large way. First, the Indian residents should get an approval of the RBI (Reserve Bank of India) to send money overseas before the LRS. But, using LRS, the Indians can send money to foreign countries is much simpler than ever before. Before investing in property abroad, it is significant to know how the LRS works and how you can utilize it to spend on property overseas among several other things. |
What is the Liberalised Remittance Scheme ('LRS')?
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The LRS process was initiated in India on 4th February 2004, The RBI (Reserve Bank of India) generated the LRS to help Indian residents who want to invest in real estate abroad or if they want to send the money outside the country.
The FEMA (Foreign Exchange Management Act) controls the flow of finance in and out of India, whereas the LRS offers a method for Indian residents to spend their money abroad without the support of the RBI. The Reserve Bank of India is considered as a central bank of India that controls the outflow and inflow of money. An unexpected depletion of the rupee could weaken the currency and damage the economy in India. That is why the RBI restricts the flow of money. Another factor that the Indian Government and RBI are aimed at controlling the depletion of money from India is to make sure that the money is not used to support any kind of terrorism or organized crime. If you have heard the word “remittance,” it is basically a person sends any money to another country. The example of a depletion payment would be precisely opposite, a foreign resident remitting money to India. |
How to Invest Overseas using LRS?
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Indian residents can send money up to 250,000 dollars overseas through the LRS in a financial year. The number of reasons that include the right of a resident Indian to buy property overseas, investing in businesses and obtains shares abroad.
Till 2015, the money that you can send overseas was limited to 200,000 dollars through the LRS, but the now the limit was increased because of increasing interest in overseas investments. At present, the limit was increased to 25,000 dollars per year, but the amount will be increased gradually over the next 10 years. The amount that you can send should be at or below the limit set by the Reserve Bank of India. The amount that you send to overseas can be paid out through “AD” (Authorized Dealers). AMCs (Authorized Money Changers) or authorized dealers are units that the RBI has endorsed this agreement in Foreign Exchange. The Reserve Bank of India identifies three categories of AMCs, including Category-II authorized dealers, Category-I bank, and FFMCs (Full-Fledged Money Chargers). Presently, the RBI allows the following transaction types through the LRS:
You should know that the list of allowed transaction above integrates only the large type of transactions permitted under the LRS. The purpose code list must be selected from is extreme longer, as they are extremely specific. Also, you should know that the LRS is applied to only residents; it is not applied to NRIs (Non-Resident Indians). The payment rules are applied to any individuals will depend on the bank account type they have in India. The NRE (non-resident external) or FCNR (foreign currency non-resident) account can send any amount they want. But, there are limitations to how much an NR (non-resident) can pay into each type of account. The NRI with an NRO (Non-Resident Ordinary) account can send up to one million dollars per year. The payment rules for NRI are quite complicated. The LRS allows minors to send money out of India, with authorization from the natural guardians of the minors. Finally, you can send up to 250,000 dollars in a financial year without the approval of RBI. The restraint applies to any of the acceptable types of dealings. if you willing to invest in overseas property, then your investment will have to be below the limit or else you must get approval from RBI. You need to fill out a few forms for each payment and you must always use an authorized dealer. But, the LRS has made it clear and simpler than ever before, especially for Indian residents to invest in property overseas. At some point, the RBI may gradually elevate the limit on external payment in the near future. Drawbacks of the LRS: The LRS does have advantages as well as disadvantages and limitation that you must know that includes: The most apparent drawback is that you cannot send more than 25,000 dollars in one financial year, as per the current rules. That can be a problem if you want to invest in real estate overseas, as you know that the property prices can be very high in abroad. To send more than the limit, then you need to get the approval from RBI. The Liberalised Remittance Scheme also has a limitation on where you are getting the money that you want to send overseas. This is important because you cannot send money that you earned from:
As the LRS allows only individual residents to send up to 250,000 dollars in one fiscal year, the individual family member can send at or below the limit as well. It is one of the special benefits to the residents who want to purchase property overseas jointly. But, it is also important to note that the RBI does not allow you to join deals under the LRS. In case, your family members are not co-partner or co-owners of an overseas bank account, property, or investment, then you cannot send under the LRS jointly. Conclusion: Buying a property overseas is the same as making any other kind of payment through the LRS. But, it also transmits several other taxes and legal implications that you must know before planning to buy a property overseas. It is also advisable to know the subject completely and learn about the investing in property overseas before you decide to do anything. |