RBI raised remittance limits for overseas branch expenses (2006 circular)
Current & verified — this is the latest version
Source: Reserve Bank of India · RBI/2005-06/372 · issued 21 Apr 2006 · ~1 min read
Quick answerRBI increased permissible remittance limits for Indian entities setting up branches abroad: initial expenses up to 10% of average annual turnover, recurring expenses up to 5%, liberalising earlier caps of 2% and 1% (per April 21, 2006 circular).
The rule, in the simplest words
Indian companies can now send more money abroad to start a new branch: up to 10% of their average yearly sales (turnover) for first-time costs, instead of the old 2%.
For running that branch each year, they can send up to 5% of average yearly sales, up from the old 1%.
The money sent must be based on the average sales of the last two years, and all other old rules still apply.
Banks that handle foreign money (AD banks) must update their systems to allow these higher limits and tell their business customers about the change.
How it plays out — a real example
A forex & trade-finance officer in Indore, Priya, helps a local jewellery company that wants to open a branch in Dubai. Using the new 2006 rule, she calculates the company's average yearly sales over the last two years as ₹10 crore, so she can now approve a remittance of up to ₹1 crore (10%) for initial setup costs—much more than the old ₹20 lakh limit. She updates her bank's internal checklist and calls the company's finance head to share the good news.
What changed
Previously, AD banks could allow remittances of up to 2% for initial and 1% for recurring expenses of average annual sales/income or turnover. The circular raised these to 10% and 5% respectively, effective April 21, 2006, with all other terms unchanged.
What it means for you
Indian companies expanding overseas could remit more funds for branch setup and operational costs without additional RBI approvals. For banks, this meant higher remittance volumes and a need to update internal limits and customer advisories.
What you must do
Update internal remittance processing systems to allow up to 10% for initial and 5% for recurring expenses based on the last two years' average turnover (per 2006 circular).
Communicate the revised limits to corporate customers with overseas branch plans.
Ensure compliance with existing terms and conditions from the original FEMA notification.
Monitor remittances to prevent exceeding aggregate caps.
Who it affects
Authorised Dealer (AD) banks handling foreign exchange remittances, Indian companies establishing or maintaining branch offices abroad, Corporate treasuries and finance teams managing overseas expansion
❓ Common questions
Regulatory timeline
Stated effective dateeffective April 21, 2006
Decoded by BankPulse2026-06-19 18:40 IST
Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).
What is the basis for calculating the 10% and 5% limits?
The limits are calculated on the average annual sales, income, or turnover of the Indian entity during the last two accounting years, as per the existing terms.
Do we need separate RBI approval for remittances above the old limits?
No, AD banks could directly allow remittances up to the new limits without prior RBI approval, provided all other conditions are met.
Are there any changes to documentation or reporting requirements?
The circular did not introduce new documentation or reporting requirements; existing terms and conditions from the original FEMA notification continued to apply.
📜 Read the original circular — full text as issued by RBI
RBI/2005-06/372
A.P. (DIR Series) Circular No. 32
April 21, 2006
To
All Banks Authorised to Deal in Foreign Exchange
Madam / Sirs,
Remittance of initial and recurring expenses
for Branch offices opened abroad
Attention of Authorised Dealer (AD) banks is
invited to sub-regulation 4A of Notification
No.FEMA 47/2001-RB dated December 5, 2001 enclosed to the AP(DIR
Series) Circular No.54 dated June 29, 2002 , in terms of which AD banks were
permitted to allow remittance up to two and one percent of average annual sales/income
or turnover during last two accounting years of the Indian entity for initial
and recurring expenses respectively of the branch or office or representative
abroad.
2. With a view to further liberalise the
procedure, it has been decided to increase the existing limit to ten percent
and five percent for initial and recurring expenses respectively subject to
the existing terms and conditions as mentioned in the above Notification.
3. Accordingly, AD banks may allow remittance
up to ten percent for initial and up to five percent for recurring expenses
of the average annual sales/income or turnover during last two accounting years
subject to the existing terms and conditions.
4. Necessary amendments to the Foreign Exchange
Management (Foreign Currency Accounts by a person resident in India) Regulations,
2000 are being issued separately.
5. AD banks may bring the contents of this
circular to the notice of their constituents and customers.
6. The directions contained in this Circular
have been issued under Section 10(4) and Section 11(1) of the Foreign Exchange
Management Act, 1999 (42 of 1999) and is without prejudice to permissions/approvals,
if any, required under any other law.
Yours faithfully,
(M. Sebastian)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2005-06/372 · issued 21 Apr 2006. The plain-English explanation above is BankPulse’s own independent summary.
Communicate the revised limits to corporate customers with overseas branch plans.
💻 IT / Systems
Update internal remittance processing systems to allow up to 10% for initial and 5% for recurring expenses based on the last two years' average turnover (per 2006 circular).
📜 Compliance
Ensure compliance with existing terms and conditions from the original FEMA notification.
Monitor remittances to prevent exceeding aggregate caps.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are an IT/Systems lead at a bank this circular applies to (Authorised Dealer (AD) banks handling foreign exchange remittances, Indian companies establishing or maintaining branch offices abroad, Corporate treasuries and finance teams managing overseas expansion), your first concrete step on “RBI raised remittance limits for overseas branch expenses (2006 circular)” is: “Update internal remittance processing systems to allow up to 10% for initial and 5% for recurring expenses based on the last two years' average turnover (per 2006 circular).” (RBI issued this 21 Apr 2006).
Action required: Update internal remittance processing systems to allow up to 10% for initial and 5% for recurring expenses based on the last two years' average turnover (per 2006 circular).
Action required: Communicate the revised limits to corporate customers with overseas branch plans.
Action required: Ensure compliance with existing terms and conditions from the original FEMA notification.
Action required: Monitor remittances to prevent exceeding aggregate caps.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 05 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=2847&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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