What changed
RBI expanded FEMA rules to explicitly permit resident individuals to make rupee gifts to NRI/PIO close relatives. Previously, such gifts were covered under LRS but not specifically allowed under deposit regulations. The credit of gift amounts to NRO accounts is now treated as an eligible credit.
What it means for you
Banks must ensure that rupee gifts to NRI close relatives are processed only through crossed cheque or electronic transfer to NRO accounts. The donor's LRS limit of USD 200,000 per financial year applies, and banks need to verify compliance. This simplifies cross-border gifting for residents while maintaining regulatory oversight.
What you must do
- Update internal LRS monitoring systems to track rupee gifts to NRI close relatives under the USD 200,000 limit.
- Train staff to verify donor declarations and ensure gifts are credited only to NRO accounts via crossed cheque or electronic transfer.
- Advise customers on the definition of 'close relative' as per Section 6 of the Companies Act, 1956.
- Maintain records of such transactions for regulatory reporting and audit purposes.
Who it affects
Authorised Dealer (AD) banks handling LRS transactions, Resident individuals gifting rupees to NRI/PIO close relatives, NRI/PIO account holders with NRO accounts
Can a resident gift rupees to any NRI, or only close relatives?
Only to NRI/PIO who are close relatives as defined in Section 6 of the Companies Act, 1956. The gift must be via crossed cheque or electronic transfer to the NRO account.
Does the gift amount count towards the LRS limit?
Yes, the gift is within the overall LRS limit of USD 200,000 per financial year for the resident donor. The donor must ensure total LRS remittances do not exceed this limit.
What documentation is needed from the donor?
The donor must provide a declaration that the gift is under LRS and within the annual limit. Banks should obtain and retain this declaration as per LRS guidelines.