Summary: Understand RBI’s forex guidelines, remittance limits, and currency exchange rules under FEMA. Learn how to buy, sell, and transfer currency while staying compliant.
When traveling overseas or remitting money abroad, the currency has to be converted in accordance with regulations set by the RBI. Forex transactions are regulated by the RBI under the Foreign Exchange Management Act (FEMA), which lays down outward remittance limits, Tax Collected at Source (TCS) on overseas remittances, and compliance norms for individuals and business entities.
Here’s a detailed breakdown of the RBI guidelines for foreign exchange transactions.
RBI Guidelines for Outward Remittance
Liberalised Remittance Scheme (LRS) under the Foreign Exchange Management Act (FEMA) enables resident individuals to remit abroad within certain limits and for approved purposes. The following are the key guidelines:
1. Maximum Remittance Limit
- Indian nationals can remit as much as USD 2,50,000 in a financial year (April – March) for permissible current or capital account transactions.
- Any remittance over this amount requires special approval from the RBI.
- Common purposes are education, medical bills, overseas investments, tour packages, and maintenance of family or relatives abroad.
2. Authorized Institutions to Initiate Remittance
- International remittances are allowed only through RBI-approved institutions, categorized as follows.
- Authorized Dealer (AD) Category I Banks: Commercial banks permitted to deal in foreign exchange.
- Authorized Dealer (AD) Category II Institutions: Licensed money changers to carry out limited foreign exchange business.
3. Mandatory KYC & Documentation
- Remittances must be made for RBI-approved purposes.
- Submission of Know Your Customer (KYC) documents is obligatory.
- PAN card information is mandatory in all outward remittances.
- A2 form declaration must be filed for foreign remittances.
4. Tax Collected at Source (TCS) on Forex Transactions
- All non-education, non-medical and non-business/commercial foreign remittances above a threshold limit of Rs 10 lakhs in a financial year made under the LRS will be subject to deduction @20%, w.e.f. April 1, 2025.
- The TCS on education and medical treatment will be 5% above the threshold of Rs 10 lakh and 0% if an education loan has been taken from an authorized financial institution.
- No TCS is levied on commercial/ business transactions.
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RBI Guidelines for Currency Exchange in India
Whether you’re buying or selling foreign currency in India, compliance with RBI regulations is essential. Here’s what you need to know!
1. Buying Foreign Currency
- KYC documents are required for currency purchase.
- Maximum purchase limit: USD 2,50,000 per individual per financial year.
- Cash purchase limit: Up to USD 3000; the remaining amount can be carried via forex cards or traveler’s cheques.
- Forex can be bought 60 days prior to the date of travel.
- Payments exceeding INR 50,000 must be made digitally (not in cash).
2. Selling Foreign Currency
- KYC documents are mandatory when selling foreign currency.
- Time limits to surrender unspent Foreign currency notes: within 90 days of return to India, and Traveler’s cheques & forex cards: within 180 days of return.
- Foreign exchange holding limit: Up to USD 2000 (or equivalent in other currencies).
- If carrying more than USD 5000 in cash or USD 10,000 in total forex, a Currency Declaration Form (CDF) must be submitted at customs.
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