The Liberalised Remittance Scheme (LRS) is a provision introduced by the Reserve Bank of India (RBI) to simplify the remittance of funds abroad by resident individuals. LRS allows eligible individuals to remit money outside India for various permissible purposes without requiring prior approval from the RBI. Its main objective is to empower resident individuals by offering them the flexibility to engage in global financial transactions while adhering to regulatory guidelines. LRS caters to a wide range of needs, making it highly relevant for those seeking to invest, pursue education, support family members abroad, or travel for purposes such as healthcare, leisure, private visits, gifting or donations, overseas employment, emigration, maintaining relatives abroad, business trips, medical treatments, or studies abroad.

Implemented in 2004, LRS was conceptualized to promote liberalization and simplify foreign exchange regulations. It was introduced as part of India's larger economic reforms to align with global financial norms and facilitate cross-border financial transactions. LRS is not available for Non-Resident Indians (NRIs). LRS is not available to corporates, partnership firms, HUF, Trusts or other similar entities.

• What is the Eligibility Criteria?

1. Who Can Use LRS: LRS is available exclusively to resident individuals, as defined under FEMA (Foreign Exchange Management Act), including minors.
2. Age Restrictions: Minors can also remit funds under LRS; however, the legal guardian must execute the transaction on their behalf.
3. Requirements: To avail of LRS, an individual must possess a PAN card and adhere to the annual limit set by the scheme.

• What are the Permissible Purposes?

The following are purposes for which remittances can be made under LRS:

1. Education and Living Expenses Abroad: In the education context, LRS allows individuals to send money abroad for a variety of study-related expenses. These include paying tuition fees to foreign educational institutions, covering travel expenses and travel insurance, depositing for a Guaranteed Investment Certificate (GIC) in Canada, and participating in seminars or training programs. It also supports payments for standardized tests like GMAT, GRE, and TOEFL, as well as rent and security deposits for students or family members. Whether it's publishing a research article or enrolling in a specialized course, LRS ensures students can manage their international education expenses smoothly.
2. Medical Treatment: Paying for treatments, consultations, or hospital stays overseas.
3. Donations and Gifts: Supporting charitable causes or gifting money to relatives or friends abroad.
4. Travel and Tourism: For personal or business-related travel expenses.
5. Maintenance of Relatives Abroad: Sending money to family members living overseas.
6. Other Permissible Transactions: Covering other approved current and capital account transactions.

• Are there any Annual Limits?

Under LRS, the annual remittance limit is set at $250,000 per financial year per individual. This amount can be utilized across the permitted purposes in any combination. For example:

1. $100,000 for education expenses
2. $50,000 for travel
3. $100,000 for capital account transaction

The remitter must ensure compliance with these limits for all combined remittances during a financial year.

The flexibility provided by the $250,000 limit enables resident individuals to remit funds for various purposes without extensive documentation or prior approval from RBI. For individuals planning larger financial commitments, effective management of the annual limit ensures optimized usage across diverse needs.

• Are there any Conversion/Transaction fees?

For all outward remittance transactions, exchange rate conversions and/or transaction fees apply, depending on the chosen method of transfer, such as branch services or online remittance channels.

• What are the Tax Implications?

1. Tax Collected at Source (TCS):TCS applies to LRS transactions exceeding INR 7 lakh in a financial year. Current TCS rates are 20% for general remittances and may vary based on the purpose and the total amount remitted.
2. Reporting in ITR: Remittances under LRS must be declared in your Income Tax Return to ensure compliance.
3. Double Taxation Treaties: For investment income, double taxation treaties may apply, reducing tax liabilities for income earned abroad.

• What are the benefits of LRS?

1. Flexibility: Provides freedom to use funds for a wide variety of purposes.
2. Simplified Process: Easy-to-follow documentation and no prior approval requirements from RBI.
3. Global Opportunities: Facilitates investments and access to global markets.
4. Support Systems: Enables support for family members or educational needs abroad.

• What is Prohibited under LRS?

LRS prohibits the following purposes for outward remittances from India:

1. Purchasing lottery tickets, sweepstakes, or banned magazines.
2. Sending funds for margins or margin calls to overseas exchanges or counterparties.
3.  Acquiring Foreign Currency Convertible Bonds (FCCBs) issued by Indian companies in the overseas secondary market.
4. Engaging in foreign exchange trading abroad.
5. Making capital account remittances to countries identified as "non-cooperative jurisdictions" by the Financial Action Task Force (FATF).
6. Transferring funds, directly or indirectly, to individuals or entities flagged by the RBI as posing significant risks for terrorism-related activities.
7. Gifting foreign currency to another resident for crediting their foreign currency account held abroad under the LRS framework.

• Documentation and Process

To initiate a remittance under LRS, follow these steps:

1. Choose an Authorized Dealer: Approach a bank authorized by the RBI for foreign exchange.
2. Submit Required Documents: PAN card and Application-cum-declaration form (A2 form)
3. Verification: The bank will verify compliance with the annual limit and purpose of remittance.
4. Execute Transaction: Upon approval, funds are remitted to the specified account.

• DOs and DON’Ts

1. Verify the remittance purpose matches permissible categories.
2. Ensure documents are accurate and up-to-date.
3. Track your annual limit to avoid excess remittances.
4. Use only authorized banks for remittances.

1. Do not exceed the annual remittance limit.
2. Avoid remitting funds for prohibited purposes like lottery or forex trading margins.
3. Never use unauthorized agents for the transaction.

• FAQs

1. What is the Liberalised Remittance Scheme (LRS)?

LRS allows resident individuals to remit up to USD 2,50,000 per financial year for permissible current or capital account transactions.

2. Who is eligible for LRS?

All resident individuals, including minors, are eligible, but the scheme is not available for corporates, HUFs, trusts, etc.

3. Are there any prohibited transactions under LRS?
Yes, remittances for purposes like lottery tickets, margin trading, or transactions with FATF non-cooperative countries are prohibited.

4. What are the permissible purposes under LRS?
Permissible purposes include private visits, studies, medical expenses, gifts, donations, business travel, and more.

5. Do I need to repatriate income earned abroad under LRS?
Income can be reinvested abroad, but unused funds must be repatriated within 180 days unless reinvested.

6. Can family members consolidate their LRS limits?
Yes, for certain purposes like acquiring immovable property, but not for individual investments unless co-owners.

7. Is a PAN card mandatory for remittances under LRS?
Yes, a PAN card is mandatory for all LRS transactions.

8. Are there restrictions on the frequency of remittances?
No, but the total remittance in a financial year cannot exceed USD 2,50,000.

9. Can remittances under LRS be made only in USD?
No, remittances can be made in any freely convertible foreign currency.

10. What documents are required for remittances under LRS?
Form A-2, proof of funds, and compliance with KYC/AML guidelines are required.

11. Are there any restrictions on remittances to certain countries?
Yes, remittances to FATF non-cooperative countries or entities posing terrorism risks are prohibited.

12. Can remittances be made for investments without restrictions?
Investments must comply with Overseas Investment Rules 2022, but no specific quality ratings are prescribed.

13. Do I need to maintain a bank account for LRS transactions?
Yes, you must maintain a bank account for at least one year with the AD bank for capital account transactions.

14. Can minors remit funds under LRS?
Yes, but the LRS declaration form must be countersigned by their natural guardian.

15. Are intermediaries allowed to offer overseas investment services freely?
No, intermediaries must obtain prior RBI approval to solicit overseas investments.

16. Can a sole proprietor make remittance under LRS under both capicity - i.e as an individual and as a sole proprietor?
An individual in his own capacity can remit USD 250,000 in a financial year under LRS, he cannot remit another USD 250,000 in the capacity of owner of the sole proprietorship business as there is no legal distinction.