The applicable definition of ‘relatives’ for remittances under LRS will henceforth be according to the Companies Act, 2013, instead of the Companies Act, 1956. The Companies Act, 2013 includes eight relationships, where as the Companies Act, 1956 included almost 30 relationships. According to Section 2(77) of the Companies Act, 2013, ‘relatives’ will include only father (including step-father), mother (including step-mother), son (including step-son), son’s wife, daughter, daughter’s husband, brother (including step-brother) and sister (including step-sister). The Companies Act, 1956, defined relatives based on the earlier joint family concept, whereas the Companies Act, 2013 has taken into account the modern nuclear family and hence reduced the number of people included under the definition of ‘relative’.
Under LRS, all resident individuals, including minors, are allowed to remit freely up to $250,000 in a financial year for any permissible current or capital account transaction, or a combination of both. Individuals can avail foreign exchange facility for the purposes within the limit of $250,000. “The introduction of PAN for every current account transaction could be meant to curb black money transactions,” said Sudarshan Motwani, chief executive officer, BookMyForex.
According to industry experts, the LRS facility might have been used for other purposes as the outward remittances under maintenance of close relatives shot up from $174 million in FY14 to $2.9 billion in FY18. Amit Saxena, managing director and chief executive officer, Unimoni (previously UAE Exchange), said, “There could have been concerns that the LRS was being used for commercial purposes. Transfers for maintenance of relatives now account for more than a fourth of the total outward remittances.”
Experts believe that the changes brought in by the RBI will have limited impact on those genuinely looking to send money abroad for the maintenance of their relatives. “The limits are so high that no genuine customer will be impacted by the changes made by the RBI. These changes are directed more towards the grey market,” said Motwani. He added that restricting the definition of ‘relatives’ will check any abuse of the scheme for commercial purposes.
Individuals, who want to send money to people other than their immediate relatives, can do so but under a different category and not under ‘the maintenance of close relatives’. “After identifying the purpose of the remittance, one can send money to distant family members and friends under category heads such as gift and travel, among others,” said Guruprasad, managing director and chief executive officer, Centrum Direct. You can send money and gifts to your uncle or aunt who will not be included in the list of those classified under ‘relative’. According to experts, the recipients should check whether such gifts will be taxed in the tax jurisdiction in which they live, especially if the amount gifted is large.