PAN becomes mandatory for sending money abroad for kids studies, investing: LRS rules tightened
RBI has tightened the rules for remitting money abroad under the Liberalised Remittance Scheme and made PAN mandatory for anyone using this scheme.
The Reserve Bank of India (RBI) has tightened the rules for remitting money abroad under the Liberalised Remittance Scheme (LRS) and has made PAN mandatory for anyone using this scheme. Earlier PAN was not insisted upon for putting current account transactions of up to $25,000.
The LRS scheme is used by resident Indians to send money abroad for their children's studies and also to invest in foreign stocks and property. LRS was opened up to Indian residents in 2004. Parents who have sent their kids abroad for studies largely use this scheme to send money for payment of fees and meet their living expenses.
LRS allows a resident Indian to buy stocks of foreign companies such as Google, Apple, etc on foreign stock exchanges or to buy properties abroad. Using LRS scheme, you can invest or send your money anywhere in the world.
The central bank has made PAN mandatory for every transaction under the scheme after the bank noticed, in January this year, that several Indian businessmen, Bollywood celebrities and diamond merchants rushed to remit funds abroad to bet on stocks and properties and breached the specified limits under the scheme.
The rules of the scheme allow individuals only to buy stocks and properties abroad and not for pure speculative bets on instruments like derivatives. The annual LRS limit (per individual) was raised in 2015 from $1,25,000 to $2,50,000.
As per the RBI statement: Pursuant to the announcement made in the first bi-monthly Monetary Policy Statement 2018-19 on April 5, 2018, a system for daily reporting of individual transactions under the Liberalised Remittance Scheme (LRS) by Authorised Dealer (AD) banks has been put in place. This system enables the AD banks to view the remittances already sent by an individual during the financial year, thus improving monitoring and ensuring compliance with the LRS limits. Since the said reporting system uses the Permanent Account Number (PAN) of the remitter as a Unique Identifier to aggregate the remitter-wise data, it has been decided that furnishing of PAN, which hitherto was not to be insisted upon while putting through permissible current account transactions of upto USD 25,000, shall now be mandatory for making all remittances under LRS. Further, in the context of remittances allowed under LRS for maintenance of close relatives, it has been decided to align the definition of 'relative' with the definition given in Companies Act, 2013 instead of Companies Act, 1956.