The transaction of foreign exchanges in India is governed by the Foreign Exchange Management Act (1999) or FEMA. To send money overseas, you need to be a resident of India, having a bank account that allows transaction rights. This account needs to be maintained for at least a period of one year before you can make any outward remittance.
Recently, the Reserve Bank of India (RBI) has taken steps in simplifying the process of sending money overseas. In February 2004, the RBI had announced its Liberalised Remittance Scheme that regulates the limitation of money that you could send overseas. Earlier, in 2007, RBI had fixed the maximum limit of sending money to an overseas bank account to USD 2,00,000 per year. After the rupee weakened, RBI reduced this limit in 2013 to USD 75,000 per year. With a stronger value of rupee, RBI has now increased the maximum limit to USD 2, 50,000 (as of May 26, 2015).
I'm a seasoned financial expert with extensive knowledge in the field of foreign exchange transactions, particularly in the context of India's regulatory framework. My expertise is rooted in a deep understanding of the Foreign Exchange Management Act (FEMA), which has been the cornerstone of governing foreign exchanges in India since its enactment in 1999. I've closely tracked the evolution of regulations and policies, ensuring that my insights are up-to-date and aligned with the dynamic nature of the financial landscape.
The article touches upon several key concepts related to foreign exchange transactions in India, and I'll provide a comprehensive breakdown:
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Foreign Exchange Management Act (FEMA):
- Enacted in 1999, FEMA is the primary legislation governing foreign exchange transactions in India.
- It establishes the legal framework for regulating foreign exchange transactions and the inflow and outflow of foreign exchange.
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Resident Status and Bank Account Requirements:
- To engage in foreign exchange transactions, one must be a resident of India.
- Having a bank account with transaction rights is a prerequisite for sending money overseas.
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Minimum Account Maintenance Period:
- The article mentions that the bank account needs to be maintained for at least one year before initiating any outward remittance.
- This requirement ensures a degree of financial stability and adherence to regulatory guidelines.
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Liberalised Remittance Scheme (LRS):
- Introduced by the Reserve Bank of India (RBI) in February 2004, the LRS is a key regulatory framework governing the limits of money that can be sent overseas.
- The scheme provides a structured framework for individuals to remit money abroad for various purposes.
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Limitation on Outward Remittances:
- The RBI, in 2007, set the maximum limit for sending money to an overseas bank account at USD 2,00,000 per year.
- In 2013, this limit was reduced to USD 75,000 per year due to a weakened rupee.
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Changes in Limits:
- The article highlights that, with a stronger value of the rupee, the RBI increased the maximum limit to USD 2,50,000 as of May 26, 2015.
- This adjustment reflects the dynamic nature of foreign exchange markets and the RBI's efforts to adapt to changing economic conditions.
By delving into these concepts, it's evident that the regulatory landscape for foreign exchange transactions in India is influenced by a combination of legislative frameworks, central bank policies, and economic considerations. The evolution of these regulations reflects the authorities' continuous efforts to strike a balance between facilitating international transactions and safeguarding the stability of the country's financial system.
