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India Tightens Overseas Remittance Rules to Curb Passive Wealth Shifting

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India's central bank is set to introduce stricter controls on foreign remittances by resident Indians, including a ban on holding fixed-term foreign currency deposits abroad, according to two government officials familiar with the matter.

The Reserve Bank of India (RBI) will revise existing regulations to close loopholes that currently allow individuals to transfer money overseas for parking in time deposits or interest-bearing accounts, one official revealed.

"This practice essentially enables passive wealth movement abroad, which raises concerns under India's managed capital account system," explained the first source, who has direct knowledge of RBI's policy considerations.

The regulatory changes underscore New Delhi's careful approach toward increasing outward remittance volumes and full rupee convertibility as policymakers work to maintain forex reserves stability and control exchange rate fluctuations, the sources noted.

Current rules permit resident Indians to send up to $250,000 annually under RBI's Liberalised Remittance Scheme (LRS), covering legitimate expenses like international education, healthcare services, travel expenditures and approved financial investments in equities or debt instruments.

Banking regulators intend to implement safeguards preventing circumvention through alternative account structures when finalizing the new framework following government consultations, added the second official.

Both sources requested anonymity given confidential nature of ongoing discussions. Neither finance ministry nor RBI representatives responded immediately for comments when contacted via email.

This initiative forms part broader review LRS legal architecture simplify operational guidelines priority item identified central bank annual policy report.< / P > >

RBI data reveals sharp increase individual outward remittance deposits $51.62 million February $173.2 million March reflecting common year end surge utilization annual limits tax planning purposes though portion these flows may represent idle capital export authorities suspect.< / P > >

Total LRS outflows fiscal year2024-25 reached nearly$30 billion marginally lower than previous year$31 billion indicating sustained high volumes despite proposed restrictions.< / P > >

div.add - wrap>< div.mpu>< div.slotad id= " div-gpt-ad-1613027583068-0">< / div>< / div>< / div > p.The growing accessibility global investment platforms through fintech solutions private banks has contributed steady rise Indian retail participation overseas markets sometimes blurring lines between active investing passive capital transfers according analysts. p."These adjustments better align remittance policies with India’s gradualist approach towards capital account liberalization while addressing emerging scheme misuse patterns," second source commented. p.New Delhi maintains cautious stance complete removal outflow restrictions balancing need preserve substantial foreign exchange buffers against potential rupee volatility risks. p.Revised regulations won't impact legitimate overseas investments stocks mutual funds real estate purchases permitted under existing LRS provisions official clarified.

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