[Opinion] Remittance of Assets Regulations vs Liberalised Remittance Scheme

CA Sri Harsha, CA Narendra & D V K Phanindra – [2022] 140 taxmann.com 482 (Article)

A person in India may remit amount to outside India under various situations. In order to regulate such remittances, various regulations have been inserted under Foreign Exchange Management Act, 1999 (‘FEMA’) and Income – tax Act, 1961 (‘ITA’). In this article, the concept of remittance of amount to outside India by Individual has been discussed in detail.

An Individual may remit amount to outside India for various purposes viz. foreign trip, foreign education, medical facilities, investment in abroad, sale proceeds of investments in India, income earned in India etc.,

Before proceeding to understanding the provisions relating to remittance of amount to outside India, it is required to understand the residential status under FEMA and ITA. This is because, an individual being a resident in India may remit the amount to outside for above mentioned purposes under Liberalized Remittance Scheme (‘LRS’). However, non-residents in India are not permitted to remit the amount under LRS but they may remit the amount to abroad under remittance of assets regulations subject to other conditions.

Under FEMA, concept of resident in India has been defined under section 2(v) of FEMA and such residential status has to be determined based on the intention and purpose of leaving India/coming to India. However, residential status under section 6 of ITA has to be determined based on number of days of stay in India.

Further, once number of days of stay in India has been determined, individual may become resident/non-resident for entire year under ITA, whereas under FEMA, such person may be treated as resident/non-resident from the date of coming to India/leaving India, as the case may be. This drives home a point that determination of residential status under FEMA and ITA are independent to each other, and such person has to be considered as resident/non-resident according to provisions of respective Acts.

If such person is considered as a non-resident in India under the provisions of ITA, amount paid to such person may be chargeable to tax in India and tax may have to be withheld on such payment under Section 195 of ITA. Further, through the Finance Act, 2020, a new sub section has been inserted in section 206C(1G) in order to make tax collection at source (for brevity ‘TCS’) provisions applicable to foreign remittances under LRS. In this article, a comparative analysis has been made between remittance of assets regulations and LRS under the provisions of FEMA and ITA.

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