RBI Updates: Overseas Direct Investment and Liberalized Remittance Scheme
Considering the present economic scenario and downsizing the value of the Rupee against internationally recognized currencies, the Reserve Bank of India has come out with some measures to rationalize the regulations governing the 'Overseas Direct Investment' and 'Liberalized Remittance Scheme for Resident Individuals' with immediate effect vide circular no. 23 and 24 dated 14th August, 2013.
1. Overseas Direct Investments (Circular No. 23)
As per the extant provisions of FEMA 1999 on overseas direct investments, an Indian Party is allowed to invest overseas in all its Joint Ventures (JVs) and/ or Wholly Owned Subsidiaries (WOSs) abroad engaged in bonafide business activity to the extent of 400% of its net worth as on the date of the last audited balance sheet under the Automatic Route.
Now with effect from the date of the circular, the present limit of 400% of the net worth has been reduced to 100% of the net worth of the Indian Party as on the date of the last audited balance sheet under automatic route and any overseas investment above 100% of the net worth shall be considered under the Approval Route by the Reserve Bank of India.
The existing limit of overseas investment of 400% of the net worth in the overseas unincorporated entities in the energy and natural resources sectors has also been reduced to 100% of the net worth under automatic route as per the latest audited balance sheet.
In respect of the Navratna Public Sector Undertakings (PSUs), ONGC Videsh Limited and Oil India Limited, the extant provisions in investing in overseas unincorporated entities and overseas incorporated entities in the oil sector, which are duly approved by the Government of India without any limits under automatic route shall continue in the same manner.
The changes effected through the circular shall apply to all fresh Overseas Direct Investments on a prospective basis and would not apply to the existing JV/ WOS set up under the extant guidelines.
2. Liberalized Remittance Scheme (Circular No. 24)
The existing limit of USD 200,000/- per financial year by the Resident Individuals under the Liberalized Remittance Scheme (LRS) has been reduced to USD 75,000 per financial year for any permitted current and/ or capital account transactions. Further the Reserve Bank of India has also issued changes/ clarifications in regard to the remittances under LRS:
- a. No remittance shall be made/ used for acquisition of the immovable property directly/ indirectly outside India;
- b. No remittance shall be made/ used for any prohibited or illegal activities such as margin trading, lottery etc;
- c. Further to the major relief of the resident individuals who wishes to set up their businesses abroad, they now have been allowed to set up Joint Ventures/ Wholly owned Subsidiaries outside India for bonafide business activities but within the limit of USD 75,000/- with effect from August 5th 2013 subject to the terms and conditions stipulated for the purpose;
Moreover the limit for the gifts or loans in Rupees by Resident Individuals to NRI close relatives shall be modified to USD 75,000/- per financial year.
Download the Circulars Below: