Liberalized Remittance Scheme (LRS) was introduced in 2004 by the Reserve Bank of India (RBI) as a liberalization measure to facilitate resident individuals to remit funds abroad for permitted current or capital account transactions or combination of both. The Regulations are amended by the RBI from time to time to incorporate the changes in the regulatory framework.
Remittance Limit under LRS:
Under the LRS, the Authorized Dealers i.e. the bankers may freely allow remittances by resident individuals up to USD 250,000 per Financial Year (April-March) for any permitted current or capital account transaction or a combination of both. The Scheme is not available to corporates, partnership firms, HUF, Trusts, etc.
From US$ 25,000 in 2004, the LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions and currently stands at US$ 250,000, as last revised in 2015
Permissible Capital Account Transactions under LRS:
All transactions which are otherwise not permissible under FEMA and those in the nature of remittance for margins or margin calls to overseas exchanges/ overseas counterparty are not allowed under the Scheme. The permissible capital account transactions by an individual under LRS are:
a. opening of foreign currency account abroad with a bank;
b. acquisition of immovable property abroad, Overseas Direct Investment (ODI) and Overseas Portfolio Investment (OPI), in accordance with the applicable provisions
c. extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in Companies Act, 2013
Permissible Current Account Transactions under LRS:
The limit of USD 2,50,000 per Financial Year (FY) under the Scheme also includes/subsumes remittances for current account transactions such as:
i. private visits;
ii. gift/donation;
iii. going abroad on employment;
iv. emigration;
v. maintenance of close relatives abroad;
vi. business trips;
vii. medical treatment abroad;
viii. studies abroad
These transactions are available to resident individuals subject to conditions laid down under Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015.
Restrictions:
i. The Scheme is not available for remittances for any purpose specifically prohibited under Foreign Exchange Management (Current Account Transaction) Rules, 2000.
ii. The Scheme is also not available for capital account remittances to countries identified by Financial Action Task Force (FATF) as non-co-operative countries and territories as available on FATF website www.fatf-gafi.org or as notified by the RBI.
iii. Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the RBI to the banks is also not permitted.
iv. Release of foreign exchange exceeding USD 250,000 requires prior permission from the Reserve Bank of India.
Documentation by the remitter:
i. The individual will have to designate a branch of an AD through which all the remittances under the Scheme will be made. The resident individual seeking to make the remittance should furnish Form A2 for purchase of foreign exchange under LRS.
ii. It is mandatory for the resident individual to provide his/her Permanent Account Number (PAN) to make remittance under the Scheme.
iii. A resident individual who has made overseas direct investment shall have to comply with the Foreign Exchange Management Overseas Investment Rules, Regulations and Directions of 2022.
TCS on LRS payments:
A major cost consideration under LRS today is the Tax Collected at Source (TCS) provision introduced a few years back under the Income Tax laws. While TCS can be claimed as credit while filing the income tax return, this has had a material impact on cash flows, especially for investors and frequent overseas spenders, as the upfront cash outgo has increased significantly. It’s advisable to plan remittances carefully and consider claiming TCS against final tax liabilities.
Here’s how TCS is applied:
i. NIL TCS on remittance for education loans (if routed through a financial institution)
ii. 5% TCS on foreign education and medical treatment if amount exceeds ₹10 lakh in a financial year
iii. 5% TCS on purchase of overseas tour package up to ₹10 lakh and 20% TCS thereafter in a financial year
iv. 20% TCS on other foreign remittances exceeding ₹10 lakh in a financial year
The LRS framework has democratized access to global opportunities for Indian residents but it’s now at a pivotal juncture. As India balances capital account flexibility with economic stability, we can expect the framework to evolve further, demanding greater awareness, compliance, and planning from users. For professionals, families, and investors, it’s no longer just about sending money abroad but about strategically managing remittances in a well-regulated, tax-efficient manner.