FEMA_&_LRS_Explained

SS Digital India

2 days ago

Transcript

00:00Alright, let's talk about sending money out of India. You know, whether it's for school and

00:04investment or just helping out family, it can feel like you're trying to solve some super

00:08complicated puzzle, right? Well, guess what? It doesn't have to be that way. We're going to break

00:13it all down, make it super simple and show you exactly how it works. Let's dive in. So you're

00:18all set to send some money abroad, but then the questions start popping up. How do I do this

00:23legally? Is there a limit? What can I even use the money for? These are the exact questions we're

00:28going to tackle step by step right now. Okay, so before we get into the nitty gritty, the dollars

00:34and cents, we have to start at square one. And square one is the single really powerful law that

00:40governs every single rupee that moves across India's borders. It's called FEMA. Just think of FEMA as the

00:47official rulebook, the Foreign Exchange Management Act. It's the master law for, well, everything

00:53related to foreign money in India. It's been around since the year 2000. And trust me, getting a handle

00:58on this is the most important first step. Now, FEMA does something pretty smart to keep things from

01:03getting too confusing. It splits every single overseas transaction into just one of two buckets.

01:10I want you to picture a highway with two main lanes. One lane is for all your day-to-day stuff,

01:14and the other is for building your wealth abroad. These are what we call current and capital account

01:19transactions. So what's the big difference? It's actually really simple. A current account transaction

01:24is for spending. It doesn't really change what you own overseas. But a capital account transaction,

01:29that's for building. It's all about creating or changing your investments, your property,

01:33your assets outside of India. And knowing which lane you're in is absolutely crucial.

01:38Let's make this super practical. What does a current account transaction look like in the real world?

01:43Well, it's the money you send for your kid's college tuition. It's the cash you use for that big

01:48vacation. It's sending a gift to a friend or helping out family members who live abroad.

01:52It's basically day-to-day life, just in another country. And then you've got the other lane,

01:58capital account transactions. This is where you're playing the long game. We're talking about buying

02:03stocks in a company like Apple or Google, purchasing an apartment somewhere else in the world,

02:08or even just opening a foreign bank account. All of these actions create a real asset for you

02:13overseas. Okay, so we've got the two types of transactions down, but how do you actually do it?

02:18How do you send the money? Well, this is where the most important tool for any Indian resident

02:23comes into play. It's called the Liberalized Remittance Scheme, or LRS. And you can just think

02:28of it as your personal express pass for moving money around the globe. And here it is, the magic

02:34number, 250,000 US dollars. Seriously, if you only remember one thing from this entire breakdown,

02:41make it this number right here. This amount is the absolute core of the whole LRS system.

02:48So what does that number actually mean for you? Well, that $250,000 limit is for every single

02:53resident Indian. And yep, that includes minors too. It resets every single financial year, which

02:58runs from April to March. And here's the really important part. It's a combined limit for everything,

03:04your spending and your investing, all bundled together. Knowing the limit is a great start,

03:09but using it the right way is what really matters. So let's get down to brass tacks.

03:14What are the absolute must-know rules you got to follow when you send money using the LRS?

03:20Okay, rule number one, and this one is totally non-negotiable. Your PAN, your permanent account

03:27number is mandatory. No PAN, no money transfer. It's as simple as that. The bank won't even look at it.

03:33Your PAN is basically the key that unlocks the entire LRS system for you.

03:37Now, even though it's called the liberalized scheme, it's not a total free-for-all. There are

03:43some hard and fast rules about what you can't do. For example, you can't use this money for any kind

03:48of gambling or for risky speculative trading. And you definitely can't send it to certain

03:53restricted countries or groups. The system is built on clear boundaries.

03:58So let's walk through how this actually plays out. The limit adds up over the year. As you can see here,

04:03you can do this in bits and pieces. Maybe you send $50,000 for tuition in April, then another $100,000

04:09for stocks in July, and another $100,000 for property in January. But see what happens? You've

04:14now hit that $250,000 mark. So when you try to send that last $10,000 in March, denied. You're maxed

04:19out until the next financial year starts in April. Ah, and here's a question I get a lot. Just because the

04:26limit is stated in U.S. dollars doesn't mean you're stuck with dollars. Nope. You can send your money

04:32in any major currency you want. Euros, British pounds, Japanese yen, you name it. The dollar

04:37amount is just the benchmark. All right, you've totally got the basics down now. So let's just

04:43touch on a couple of more specific scenarios, and then we'll wrap it all up with the key things you

04:48absolutely need to remember. This is a really cool feature called clubbing. Basically, a family can

04:54pool their individual LRS limits together to make a much larger transaction. But there's a huge catch you

05:01need to know. If it's for an investment, like buying property, every single family member who chips in

05:06their limit must be a joint owner on paper. That's a big one. Now, for any business owners out there,

05:11listen up. The legal structure of your business matters a lot. If you're a sole proprietor,

05:17you and your business are seen as one and the same. So you share one LRS limit. But an LLP is a

05:24totally separate legal entity. And that means the business's transactions don't eat into the personal

05:29LRS limits of the partners, which is a massive advantage. Let's quickly hit two very common

05:35situations, sending a gift or giving a loan to a relative who's an NRI. The answer is yes,

05:40you can do both, and it counts towards your LRS limit. But there are rules. The money has to go

05:45into their NRO account, and if it's a loan, it's got to be interest-free for at least a year.

05:50So let's do a rapid-fire recap. The final checklist.

05:54FEMA, that's the master rulebook. LRS, limit your magic number, 250k a year.

06:01PAN, you can't do anything without it. Prohibited items, know what's off-limits.

06:06And finally, current versus capital, know which lane you're in. Nail these five points,

06:11and you've pretty much nailed the entire system. And that's it. You now have the complete roadmap

06:16to legally and, more importantly, confidently send money out of India. The whole system is

06:22really designed to empower you. So the only question left to ask is, what's your next global move going

06:28to be?

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