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What Are RBI Guidelines For Foreign Exchange Transactions?

Published by Usman Ahmed, MBA (Researcher)

Reviewed by Bowen Khong, ACCA

The Reserve Bank of India (RBI) is the prime financial regulatory authority in India. The bank oversees all the financial affairs, including international remittance and local currency exchange. In this piece, I will discuss the RBI guidelines for foreign exchange transactions in detail.

However, before moving to the subject matter, let me first explain the LRS which is very important to understand.

Liberalized Remittance Scheme (LRS)

According to laws governing the Liberalized Remittance Scheme (LRS), Indian citizens can transfer funds internationally for any purpose, such as admission fees for online trading courses, investment in equity, or purchasing a property outside India.

As per the initial LRS rulings, it was not mandatory to keep RBI in loop while making international transfers of up to a specific limit. However, after an amendment to the LRS rules in 2018, you need to fill up a declaration form, also known as a PAN card and submit it to the RBI irrespective of the amount you wish to transfer.

Coming back to the topic; there are two categories that I’m going to discuss here;

  1. RBI Rules On Funds Transfer Abroad
  2. RBI Rules On currency Exchange In India

1) RBI Rules On Funds Transfer Abroad

According to the RBI guidelines for foreign exchange transactions, the maximum threshold for international transfers is $250,000 per financial year. Residents can choose to transfer the said amount in one go or through transactions in parts. It is worth mentioning here that the LRS does not apply to corporations and trusts (NGOs). 

Also, the remitter can only transfer funds through state-approved institutions, including Banks and authorized money exchangers. Please note that only money exchangers with AD-II license have the authorization from RBI to transfer international funds on customers’ behalf. 

Other electronic payment wallets such as PayPal, Skrill, Neteller should not be confused as approved money exchangers. However, you can use them for making international payments against invoices raised by international businesses for rendering services or sale proceeds. 

The RBI also asks to share the reason for international transfers. Therefore, you need to submit the following documents to the money exchanger or the relevant bank to proceed with foreign transactions. 

  1. KYC Documents
  2. Purpose of Foreign Remittance

For those who are not familiar with the KYC terminology, let me explain it briefly. KYC is the abbreviation of the phrase Know Your Customer. It’s a process used for identity verification of clients. In compliance with international laws on anti-money laundering activities, all financial institutions and intermediaries entrusted with public money need to follow the KYC process.

Depending upon the purpose of remittance, submission of different documents might be required. Generally, the following documents might be sufficient to prove your identity. However, you can be asked to submit additional documents as well. 

  1. National ID card/ Passport/ Driving License
  2. Bank statement/Utility Bill 
  3. PAN card
  4. Offer letter (in case of admission fees)

i) Banned Foreign Transaction Under LRS 

  • Foreign transactions such as purchasing lottery tickets, or investment in gambling, etc., are not allowed under LRS.  
  • International funds transfer to an online broker for forex trading is also banned under the LRS. Learn more on here and here.
  • Capital account remittances to countries marked as non-cooperative jurisdictions are also not allowed under LRS.  
  • Funds transfer to terrorist oriented entities is also prohibited as per LRS. 

ii) RBI Approved Methods For Foreign Transactions

Indian residents can use the following methods to transfer funds abroad. 

  1. Wire Transfer / Telegraphic Transfer
  2. Demand Draft

Lastly, banks or authorized dealers may ask you to provide the beneficiary details to whom you wish to send money. 

2) RBI Rules On currency Exchange In India

People need foreign currency for different purposes. However, one of the main purposes is when they plan to travel abroad. Let me quickly explain the RBI guidelines for foreign exchange transactions needed for international travel.

i) Buying Foreign Currency In India

According to the Liberalised Remittance Scheme (LRS), Indian residents can buy foreign currency up to the limit of $250,000 per financial year. However, the available limit to buy foreign currency is not separate from the limit applicable to foreign transactions. That means the total limit available in terms of the foreign transaction, whether it’s for international funds transfer or currency exchange, is $250,000 in a single financial year.

Travelers can withdraw up to 3000 USD or equivalent foreign currency as cash. The rest of the money should to be carried through a forex card or traveler’s cheque, or the combination of both methods.

As per the RBI guidelines, the following documents are needed to buy foreign currency from an authorized bank or a money dealer.. 

  1. Indian Passport
  2. Confirmed Air Ticket – (Travel date within 60 days)
  3. PAN Card
  4. Valid Visa
  5. Aadhar Card (If & when required)

Please note that the applicable cash limit is for a single traveler. If you are traveling along with other family members or friends, then you can apply for an extended cash limit. You can do so by submitting the KYC documents to the bank or authorized money exchanger.

Not to mention, only Indian residents can buy foreign currency inside India. Non Resident Indians (NRIs) and foreigners are not eligible to buy foreign currency in India. 

You can buy foreign currency using three available methods, including cash, online payments, debit/credit cards. However, only one method is accepted for a single transaction. You can’t use multiple payment methods to complete a single transaction. 

ii) Selling Foreign Currency In India

Please note that all the procedures remain the same for selling foreign currency after returning to India. However, you need to surrender any cash above $2000 to the authorized bank or money changer. Cash below $2000 can be kept for future use.

Please be informed that if the currency in excess of $2000 is worth more than 49,990 Indian Rupees then the money changer or bank will transfer the funds through RTGS. However, if this amount is less than Rs. 49990, then the bank or money changer can choose to pay you in cash. 

Usman Ahmed, MBA (Researcher)
Usman Ahmed, MBA (Researcher)
Usman Ahmed is a currency trader and financial market analyst with more than 7 years of active trading experience. Besides holding a Masters degree in Business Administration, he has worked for some of the most renewed companies in the forex industry including FXCM, IQOption, MetaQuotes, Alpari, FXStreet, DailyFX and several others. Usman possesses strong technical analytical skills and is famous for his very own, informative and entertaining, writing style. He believes in naked chart trading analysis that is commonly known as price action trading. He follows global financial news and macro-economic events very closely.
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