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New Remittance Rules Put Wealthy Indians in a Fix

InduQin

Affluent Indians, who have been legitimately parking a slice of their wealth outside the country for a decade, are in a catch-22 situation.


These rich residents, who spread their money across currencies and markets, are now unsure how to diversify their savings, with the Reserve Bank of India (RBI) yet to spell out whether they can hold fixed deposits (FDs) with overseas banks.


A new rule restrains them from keeping money beyond six months in offshore bank accounts. The rule requires them to ‘invest’ the unused money remitted from India in foreign securities, mutual funds, properties and other permitted assets.


Most interpret that ‘FDs’ are not included as permitted investments under the revised Liberalised Remittance Scheme (LRS) which allows a resident Indian to transfer $250,000 a year abroad to invest or lend.


“This leaves certain unanswered questions. An Indian resident is allowed to maintain a foreign bank account for investment or realisation purposes. Typically, a foreign bank will have a requirement of maintenance of minimum balance but the new LRS framework does not provide flexibility to retain excess funds in the bank account beyond a period of 180 days. So, how does one maintain a minimum balance and have an account with the bank?” said Parul Jain, co-head, international tax practice at law firm Nishith Desai Associates.


Under the LRS framework, an Indian resident can retain and reinvest the income earned from his investments made under the scheme. However, the unused foreign exchange — unless reinvested — must be repatriated back to India within 180 days from the date of such receipt.


“Also, based on a literal reading, even foreign FDs may not be permitted to be made since these would qualify as investments made into ‘unlisted debt’. So, planning realisations and remittances back into India while dealing with a cycle of 180 days would be administratively cumbersome… RBI should provide flexibility to Indian residents to enable them to maintain such minimum balances in their foreign bank accounts,” said Jain.


Besides senior tax and legal practitioners, large banks, on behalf of their clients, had approached the RBI for clarification. Many were taken aback when the FAQs released by RBI a fortnight ago did not clear the air.


Read more at: https://economictimes.indiatimes.com/epaper/delhicapital/2023/apr/24/et-front/new-remittance-rules-put-wealthy-indians-in-a-fix/articleshow/99714774.cms

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