What is Liberalised Remittance Scheme?
The Liberalised Remittance Scheme (LRS) allows resident individuals to remit up to USD 250,000 per financial year for permitted current or capital account transactions. Introduced by RBI, LRS has made it significantly easier for Indians to invest, study, travel, and conduct business abroad.
Key Features of LRS
- Annual Limit: USD 250,000 per resident individual per financial year (April-March)
- All Inclusive: Covers both current and capital account transactions
- No RBI Approval: Remittances within limit don't require RBI approval
- AD Bank Route: Must be routed through Authorized Dealer Category-I banks
- PAN Mandatory: Permanent Account Number is compulsory for all LRS remittances
- TCS Applicable: Tax Collected at Source on remittances exceeding ₹7 lakhs
Historical Evolution
LRS was introduced in 2004 with a limit of USD 25,000. Over the years, RBI has progressively increased the limit to the current USD 250,000 to facilitate greater foreign exchange outflows for legitimate purposes.
Permitted Remittances Under LRS
LRS covers a wide range of purposes, making it versatile for individuals with various overseas financial needs.
Current Account Transactions
- ✓ Private visits to any country (except Nepal & Bhutan)
- ✓ Education expenses abroad
- ✓ Medical treatment overseas
- ✓ Emigration and emigration consulting fees
- ✓ Employment-related remittances
- ✓ Maintenance of close relatives abroad
- ✓ Gift remittances
- ✓ Donations to charitable organizations
Capital Account Transactions
- ✓ Investment in foreign stocks and securities
- ✓ Investment in foreign property (excluding prohibited countries)
- ✓ Opening foreign currency accounts abroad
- ✓ Investment in overseas business ventures
- ✓ Acquisition of immovable property abroad
- ✓ Setting up wholly-owned subsidiaries
- ✓ Loans to NRIs (as per FEMA regulations)
Prohibited Transactions
Transactions Not Permitted Under LRS
- ✗ Remittances to countries identified as non-cooperative by FATF
- ✗ Remittances for margin trading or lottery winnings
- ✗ Purchase of FCCBs issued by Indian companies
- ✗ Capital account remittances to countries prohibited by RBI
- ✗ Remittances towards purchase of agricultural land abroad
- ✗ Transactions with sanctioned entities or individuals
Tax Collected at Source (TCS)
Budget 2020 introduced TCS on LRS remittances exceeding ₹7 lakhs in a financial year. This is applicable from October 1, 2020.
| Purpose of Remittance | TCS Rate |
|---|---|
| Education (financed by loan from financial institution) | 0.5% of amount above ₹7 lakhs |
| Education (other than loan) | 5% of amount above ₹7 lakhs |
| Medical treatment | 5% of amount above ₹7 lakhs |
| Overseas tour packages | 5% (no threshold from July 2023) |
| Other purposes | 5% of amount above ₹7 lakhs |
| If PAN not furnished | 10% |
Note: TCS is collected by the bank at the time of remittance and can be claimed as credit while filing income tax return.
Remittance Process
Choose AD Bank
Select an Authorized Dealer Category-I bank (most major banks).
KYC and Documentation
Submit PAN, Form A2 (LRS declaration), and purpose-specific documents.
Check LRS Limit
Bank verifies available limit (₹7 lakh threshold for TCS).
Fund Transfer
Transfer INR to bank; bank converts to foreign currency and remits.
Acknowledgment
Receive SWIFT acknowledgment and TCS certificate (if applicable).
Documentation Requirements
| Purpose | Required Documents |
|---|---|
| Education | University admission letter, fee invoice, Form A2, PAN |
| Medical Treatment | Doctor's recommendation, hospital estimate, Form A2 |
| Investment Abroad | Form A2, PAN, investment proof, Form 15CB (if applicable) |
| Gift | Form A2, PAN, declaration of relationship |
| Maintenance | Form A2, PAN, proof of relationship |
Frequently Asked Questions
Can a minor use LRS?
Yes, LRS is available for minors through their natural guardian. The declaration form must be signed by the guardian on behalf of the minor.
Can unused LRS limit be carried forward?
No, the USD 250,000 limit is for the specific financial year only. Unused limit cannot be carried forward to the next year.
Can LRS be used for remittance to Nepal and Bhutan?
No, LRS does not cover remittances to Nepal and Bhutan. Separate rules apply for transactions with these countries.