Liberalised Remittance Scheme (LRS) for resident individuals-Increase in the limit from USD 75,000 to USD 125,000

Liberalised Remittance Scheme (LRS) for resident individuals-Increase in the limit from USD 75,000 to USD 125,000

It was decided vide A.P.(DIR Series) Circular No. 138 dated June 3, 2014, to increase the limit to USD 125,000 per financial year (April-March) from USD 75,000. Accordingly, AD Category –I banks have been allowed to remit up to USD 125,000 per financial year, under the Scheme, for any permitted current or capital account transaction or a combination of both. Further, it is clarified that the Scheme can now be used for acquisition of immovable property outside India.


All other terms and conditions shall remain unchanged.

Ref

A.P. (DIR Series) Circular No.5 dated 17 July 2014

REIMBURSEMENT OF PRE-INCORPORATION EXPENSES TO A FOREIGN INVESTOR

REIMBURSEMENT OF PRE-INCORPORATION EXPENSES TO A FOREIGN INVESTOR

Foreign Exchange Management Act (FEMA), 1999 – Current Account Transactions – Reimbursement of pre-incorporation expenses - Liberalization

1. Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to Foreign Exchange Management (Current Account Transactions) Rules, 2000 notified vide Notification No. G.S.R.381(E) dated 4th May 2000. In terms of Rule 5 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 (the Rules), prior approval of the Reserve Bank is required for drawing foreign exchange for remittance exceeding USD 100,000 by an entity in India by way of reimbursement of pre-incorporation expenses [item 17 of Schedule III of the Rules].
2. As announced in the Annual Policy Statement for the year 2007-08 (para 146 (i) iii)) and with a view to liberalise the procedure further and providing greater flexibility, it has been decided to allow remittance of foreign exchange towards reimbursement of pre-incorporation expenses incurred in India up to 5 per cent of the investment brought into India or USD 100,000, whichever is higher, on the basis of certification from statutory auditors. Accordingly, AD Category - I banks may permit drawal of foreign exchange by an entity in India by way of reimbursement of pre-incorporation expenses up to the limit mentioned above, on the basis of certification from statutory auditors.
3. This is also reaffirmed in the RBI Master Circular  RBI/10-11/1 Master Circular 01-2010-2011 dated 1st July 2010.
4. Necessary amendments to Foreign Exchange Management (Current Account Transactions) Rules, 2000 are being notified separately.
5. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers concerned.
6. The directions contained in this circular have been issued under Section 10 (4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law.
 
This is in accordance with RBI circular no RBI/2006-2007/368--A. P. (DIR Series) Circular No. 47 dated April 30, 2007.
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How Much An Indian Company Can Pay to a Foreign Consultant as Consultation Fees?

In the RBI Circular “RBI/ 2004/39 A.P. (DIR Series) Circular No. 64 February 4, 2004, and in Schedule III(See Rule 5), under paragraph 13 it has been clearly stated that authorised dealers can release the payment as per details given below : Up to Remittance not exceeding USD 1,000,000 per project, for any consultancy service procured from outside India.

Remittance exceeding USD 1,000,000 per project, for any consultancy service procured from outside India needs RBI prior approval.

Thus as per the above circular, the Authorised dealers are allowed to release 1 million US dollars for any foreign consultancy services and hence it falls under automatic approval of RBI if the remittance does not exceed USD 1 Million.
It is to be noted that there are no other preconditions attached to this and an Indian Company wish to pay a foreign consultant need not necessarily to have earnings in dollars or other foreign currencies. Even there is nil foreign currency income for a Indian company , it can pay to a foreign consultant up to USD 1 Million.

However , if a Indian company wants to pay more than USD 1 Million, then it has to get the prior approval from RBI by substantiating its foreign revenues.