Investing outside India has become easier for resident Indians, thanks to clear rules under FEMA (Foreign Exchange Management Act). Here’s a handy guide to Overseas Direct Investment (ODI), Liberalised Remittance Scheme (LRS), and the important dos and don’ts for anyone wishing to buy shares or invest in foreign entities.
If you need personalised guidance, you can consult the experts at Kharedeshmukh for up-to-date advice and compliance support.
What is LRS (Liberalised Remittance Scheme)?
The Liberalised Remittance Scheme allows any resident Indian individual—including minors—to legally send money outside India for various permitted purposes. This could be money for investments, education, travel, gifting, medical expenses, or supporting family members abroad.
Key Points:
- The remittance limit is USD 250,000 per financial year (April–March) per person.
- LRS applies only to individuals—not to firms, companies, trusts, HUFs, or partnership firms.
- The amount can be used in one go or in multiple small transactions.
- Common uses: Buying foreign stocks, acquiring immovable property, education or medical expenses, gifting, and travel.
What is ODI (Overseas Direct Investment)?
ODI means an Indian resident investing directly in the equity capital of a foreign entity, typically acquiring 10% or more of the shares or voting power, or gaining a significant management role (control). Major business investments—like purchasing shares in an overseas company or starting a joint venture—fall under ODI
Typical ODI scenario:
- You wish to become a shareholder (10% or more) or own/control an overseas business.
- All documentation and remittance happen through an Authorized Dealer bank after meeting the RBI’s ODI norms.
Permissible Investments & What’s NOT Allowed
What You Can Do:
- Invest in overseas shares, debt instruments, and mutual funds (restrictions apply)
- Buy a property, send funds for education, healthcare, or family maintenance
- Gifts and donations to persons or organizations outside India
What You CANNOT Do:
- Remit money for gambling, lottery tickets, banned publications, or other prohibited items
- Invest in real estate businesses (except certain residential or township projects), Nidhi/chit fund companies, agricultural activities, or trading in transferable development rights
- Send funds to countries notified by the FATF as “non-cooperative jurisdictions” (e.g., North Korea, Iran), or directly/indirectly to Bhutan, Nepal, Mauritius, or Pakistan
Who Can’t Use LRS?
- LRS is available only to resident individuals. Firms, partnership entities, corporates, trusts, and HUFs cannot use this route for overseas remittances.
- If such entities wish to invest abroad, they must go through the ODI or other specific routes and obtain prior RBI approval.
Exceeding the USD 250,000 Limit—What if You Want to Invest More?
If you want to remit/invest more than USD 250,000 in a year:
- You must seek special approval from the RBI, giving reasons and documentation.
- Corporates, trusts, and firms can invest via routes like ODI, provided they meet the eligibility criteria under the relevant FEMA regulations and use the prescribed reporting formats.
Quick Compliance Checklist for Investors
- Check your eligibility as a resident individual.
- Stay within the permitted USD 250,000 limit per financial year under LRS, or seek prior RBI approval for higher amounts.
- Ensure your purpose is permitted—not on the negative (prohibited) list.
- Use only authorized dealer (bank) channels.
- Complete all forms (e.g., Form A2, ODI forms), provide KYC, and submit supporting documents.
Investing abroad is now possible for Indian residents—but always check the eligibility, limits, and purpose, and comply fully with FEMA norms. When in doubt, consult a CA or your banker for the latest guidelines and documentation advice. Investing the right way means peace of mind and staying on the right side of the law.
