You might be owning properties in your favourite hill station, the buzzing sea-side town or your oft-visited temple-town in India. But if you really want to stand apart from the hoi-polloi, you need a villa by the Mediterranean, where you can slouch on the deck-chair, enjoying the sunset. Or own a bungalow in the pristine Alps, to beat the Indian summer.
Similarly, putting your eggs in different baskets has a new meaning these days. It does not mean spreading your assets across equity, debt, realty, and so on. You need to spread your investments across countries to signal that you have arrived.
Under this scheme, the RBI allows all Indian citizens, including minors, to remit up to $250,000 (roughly ₹1.6 crore) for certain permissible transactions each financial year. These include purchasing certain assets overseas. Even minors can use this scheme to transfer money overseas, provided the form is counter-signed by the natural guardian of the minor. However, money cannot be remitted from a HUF or a Trust owned by you. Similarly companies and partnerships are also outside the purview of this scheme.
The limit under LRS can be used for certain current account transactions too. If you are planning an elaborate tour to visit many countries, you can spend up to $250,000 per year on travel lodging and other expenses. Even if you pay the tour operator in Indian rupees, you have to stay within the limit. You can also use this limit for giving gift or donation, for maintaining relatives abroad, medical treatment or for overseas education.
The central bank even allows you to use this money while emigrating to other countries. But if you plan to remit any amount above the $250,000 limit, it can be used to meet incidental expenses in the country of immigration and not for earning points or credits to become eligible for immigration through investing in overseas assets.
Capital account transactions But it is the remittance allowed for capital account transactions that is the focus of this piece. The money sent overseas under the LRS can be used for various purposes, including opening a bank account in foreign currency with an overseas bank, buying property abroad, investing in shares of both listed and unlisted companies located overseas, investing in mutual funds, venture capital funds, unrated debt securities and promissory notes. You can also extend loans to relatives in Indian rupees under this scheme.
The list of prohibitions for utilisation of the LRS funds is also pretty long. You cannot buy lottery tickets or participate in sweep-stakes with the money. Unfortunately, the RBI clubs derivatives of all kind along with other kinds of gambling, and prohibits use of this money for paying margins for derivatives. You cannot trade in forex using this money or buy FCCBs issued by Indian companies in overseas market. Similarly, investments cannot be made in countries where risks of money laundering are high.
A PAN card is mandatory for making remittances under this scheme. However, if you are making current account transactions up to $25,000, then PAN card is not essential. The remittance is permitted in any foreign currency and is not restricted to US dollar. You will have to select the branch of the bank through which you plan to make all your capital account remittances. Do note that you need to have maintained the bank account for at least a year before you can begin making the remittances.
You might find that the sum permitted each year is too small to purchase property overseas. You can circumvent this problem by pooling the limits of the family members and use this to meet the cost. This is permitted as long as the investment purchased is jointly owned by the family members whose money is used.
“Consolidation in respect of family members for investment is permissible, provided that each individual family member so consolidating complies with the terms and conditions of LRS and is listed as partner in the investment. As far as opening, maintaining and holding of foreign currency account with a bank outside India for making remittances under the LRS is concerned, no prior approval is required,” says Vikas Gupta, Partner, Nangia & Co LLP.
With each country having differing laws regarding non-residents purchasing property, you will have to employ legal consultants in those jurisdictions to understand the laws and carrying out due diligence.
Investing in shares overseas is, however, easier as you can use the sum parked in foreign currency overseas to buy shares in listed or unlisted companies and hold them in demat accounts of those countries. Similarly, you can use these funds to buy mutual fund units or invest in venture capital or debt instruments overseas.
Lack of familiarity with overseas markets can be a big deterrent when buying equity or debt instruments overseas. You can consider a wealth management firm with presence across various countries to help you out. Another reason why Indian investors are not too forthcoming about investing in overseas equity and debt is due to the superior returns being offered by the domestic equity market and debt instruments.
That said, it pays to keep track of this scheme and keep moving money overseas too, lest you need to buy some must-have property or investment at a very short notice.