Dear Experts,
I request your guidance on the FEMA implications of the following fact pattern:
- I am a resident individual holding a US brokerage account, funded entirely through proper LRS remittances from my Indian bank account (Form A2 filed, full documentation available).
- During FY 2025-26, I transferred approximately USD 7,000 from my US brokerage account directly to my brother's US brokerage account (broker-to-broker internal transfer, both accounts with the same US broker). My brother is also a resident individual.
- The transfer was intended as a gift (brother-to-brother, covered as "relative" under Section 56(2)(x) of the Income Tax Act, so no income tax issue). A gift declaration is being executed.
- Both of us will be disclosing our respective foreign accounts in Schedule FA of our ITR-2 for AY 2026-27.
My questions:
Q1. Is an offshore-to-offshore gift of foreign currency between two resident individuals a permitted transaction under FEMA/LRS, given that the funds originally left India through my own LRS quota and no fresh outflow from India occurred? Or does my brother's receipt amount to acquisition of foreign exchange otherwise than through an authorised dealer?
Q2. If it is a technical contravention, is it advisable to file a suo moto compounding application with RBI for this quantum (~₹6 lakh), or is it sufficient to maintain documentation (gift deed + my original A2/LRS remittance proof) and respond only if a query is raised?
Q3. Would it be advisable to regularize by having my brother remit USD 7,000 from his own Indian bank account under his LRS quota and return the original amount to me — effectively converting his holding to a self-LRS-funded position?
Q4. Does my brother investing this amount in US stocks (and realizing gains) create any additional FEMA issue beyond the receipt itself, assuming full Schedule FA disclosure and capital gains tax paid in India?
Thank you in advance for your guidance.
CAclubindia
