Module: | MODULE A: INTERNATIONAL BANKING
Q34: Consider the following statements concerning overseas direct investments and portfolio investments by resident individuals under the Liberalised Remittance Scheme:
Statement 1: Resident individuals are permitted to remit funds to acquire shares of a foreign entity, but they are strictly prohibited from setting up a Wholly Owned Subsidiary abroad under this scheme.
Statement 2: An individual can utilize their annual scheme limit to acquire immovable property overseas, either individually or jointly with a non-resident close relative.
Statement 3: Any foreign currency account opened abroad by a resident to park funds for portfolio investments must be closed within 6 months if no investments are actively made.
Which of the statements given above are incorrect?
Statement 2: An individual can utilize their annual scheme limit to acquire immovable property overseas, either individually or jointly with a non-resident close relative.
Statement 3: Any foreign currency account opened abroad by a resident to park funds for portfolio investments must be closed within 6 months if no investments are actively made.
Which of the statements given above are incorrect?
✅ Correct Answer: A
The correct answer is A. Statement 1 is incorrect.
The foreign exchange framework governing overseas investments was significantly liberalized to allow global wealth diversification.
Structurally, under the Overseas Investment Rules, resident individuals are fully permitted to use their 250,000 US Dollars limit to make Overseas Direct Investments.
This explicitly includes not only purchasing equity in existing foreign companies but also setting up new Joint Ventures or Wholly Owned Subsidiaries abroad, provided they operate in a legitimate business activity.
Therefore, Statement 1 is legally false.
Statement 2 is correct; a resident can purchase overseas real estate and is permitted to hold it jointly with a non-resident relative, provided there is no outflow of funds from India exceeding the resident's individual limit.
Statement 3 is also correct, as regulatory authorities mandate the repatriation of idle funds.
If an investor opens a foreign currency account abroad but fails to deploy the capital into legitimate investments within 180 days, which is approximately 6 months, the account must be closed and the funds must be brought back to India.
The foreign exchange framework governing overseas investments was significantly liberalized to allow global wealth diversification.
Structurally, under the Overseas Investment Rules, resident individuals are fully permitted to use their 250,000 US Dollars limit to make Overseas Direct Investments.
This explicitly includes not only purchasing equity in existing foreign companies but also setting up new Joint Ventures or Wholly Owned Subsidiaries abroad, provided they operate in a legitimate business activity.
Therefore, Statement 1 is legally false.
Statement 2 is correct; a resident can purchase overseas real estate and is permitted to hold it jointly with a non-resident relative, provided there is no outflow of funds from India exceeding the resident's individual limit.
Statement 3 is also correct, as regulatory authorities mandate the repatriation of idle funds.
If an investor opens a foreign currency account abroad but fails to deploy the capital into legitimate investments within 180 days, which is approximately 6 months, the account must be closed and the funds must be brought back to India.