Context:
The Reserve Bank of India (RBI) is planning to amend the Liberalised Remittance Scheme (LRS) to prevent resident Indians from parking funds in overseas time deposits or other interest-bearing foreign currency accounts, two government sources revealed.
Objective Behind the Move
- RBI sees foreign currency time deposits as a form of passive wealth shifting, inconsistent with India’s controlled capital account regime.
- Aim is to safeguard forex reserves and reduce currency volatility.
- Aligns with India’s cautious approach to capital account convertibility.
What Will Change?
- Proposed amendment will ban resident individuals from:
- Investing in foreign currency time deposits abroad
- Using alternate names or proxies to bypass the rule
- Will apply under LRS, which currently allows remittance of up to $250,000 per financial year for education, travel, investments, healthcare, etc.
What is the Liberalised Remittance Scheme (LRS)?
The Liberalised Remittance Scheme (LRS) was introduced by the RBI in 2004 to simplify foreign remittances for Indian residents. Under this scheme, individuals can send up to USD 250,000 per financial year (April–March) outside India for permissible transactions without requiring prior approval from the RBI.
This means that Indian residents can freely remit funds for purposes like foreign travel, overseas education, investments, gifts, donations, medical treatment, and more—as long as they comply with RBI guidelines.
