The Reserve Bank of India introduced the Liberalised Remittance Scheme (LRS) which has been an important policy. This scheme allows Indian residents to remit (transfer) money abroad for diverse reasons. The scheme permits resident individuals to transfer a specific amount of money in a financial year for certain purposes, such as travel, education, investments, etc., to beneficiaries outside India. It aims to liberalise and simplify the process of sending money abroad for legitimate purposes. Let’s understand all about the Liberalised Remittance Scheme in this blog.
| Key Takeaways |
| LRS enables Indian residents to remit up to USD 250,000 per financial year for permissible current or capital account transactions. |
| Funds can be sent for various purposes. These include education expenses, medical treatment, and gifts and donations, travel and emigration, and investment in foreign assets. |
| Funds can be sent for various purposes. These include education expenses, medical treatment, gifts and donations, travel and emigration, and investment in foreign assets. |
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What is the Liberalised Remittance Scheme?
The LRS enables Indian residents to remit up to USD 250,000 per financial year (April to March) for permissible current or capital account transactions. This includes payments for education, medical treatment, travel, and investments abroad, among other uses. The scheme simplifies the process of sending money overseas, removing previous restrictions under the Foreign Exchange Management Act (FEMA) of 1999.
Types of Transactions Under LRS
| Types of Accounts | Types of Transactions |
| Capital Account Transactions | – Private visits abroad (excluding Bhutan and Nepal) – Maintenance of family members living overseas – Medical treatment and educational expenses |
| Current Account Transactions | – Purchase of property abroad – Investments in foreign securities or mutual funds – Setting up joint ventures or subsidiaries outside India |
Features and Eligibility of LRS
Under LRS, you can spend and transfer money to foreign countries for education, purchase of assets like shares and property, tourism, medical purposes, and many more. For this, resident individuals can open and maintain a foreign currency account with overseas banks to carry out the transactions. Know about the cheapest international money transfers in our blog.
Here are some more features of the liberalised remittance scheme.
- Under the LRS, resident individuals, including minors, are also eligible to remit a specified amount per financial year.
- Corporates, HUFs, partnership firms, and charitable trusts are not eligible under the Liberalised Remittance Scheme.
- If you are an Indian residing in some other country for employment purposes, FEMA (The Foreign Exchange Management Act, 1999), considers you as an NRI and you are not eligible for remittances under LRS, even though you are a citizen of India, but you are not an Indian resident.
- There are no limits on the number of transactions that can be made. However. the permissible limit is currently set at an amount of USD 250,000 per person per financial year, and the value of foreign transactions can not exceed this limit.
- If an individual needs to remit more than the permissible limit, they must seek permission from the RBI.
- Eligible purposes include education, travel, medical treatment, gifting, investment in securities, and more.
- Individuals are required to adhere to the guidelines set by RBI regarding documentation and reporting requirements for transactions conducted under the LRS.
- Permanent Account Number (PAN) is mandatory for carrying out all transactions under this scheme.
- The applicant must have maintained a bank account with the bank for a minimum of one year before making any sort of remittances.
How Does the Liberalised Remittance Scheme Work?
Many Indian banks operate under a liberalised remittance scheme. Check about HDFC Bank remittance services here.
Any individual who is an Indian citizen is eligible to transfer money under LRS. It includes minors as well, however, the natural guardian of the minor must sign Form A2 in the LRS declaration form. For consolidating remittances under LRS, individuals must adhere to the terms and conditions stated.
Clubbing by other family members is not permitted for capital account operations, such as opening a bank account or making investments if these family members are not co-partners or co-owners of the foreign bank account, investment, or property. A resident can also not offer gifts in international currency under this scheme.
To make the transactions possible, one must convert the Indian currency into US Dollars to invest or spend overseas. However, this is not mandatory, as you can make remittances in any freely convertible currency.
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Benefits of LRS
The Liberalised Remittance Scheme introduced by the Reserve Bank of India does offer many benefits to the resident individuals. Some of the benefits of foreign remittances are discussed below-
- The scheme facilitates diverse financial objectives. It enables individuals to fulfil various financial needs, including education expenses, travel, investments, and more.
- It helps in the diversification of investments and allows investors to diversify their portfolios by investing in foreign financial instruments or properties.
- The scheme provides international exposure to individuals and offers opportunities to gain exposure to global markets and educational institutions.
Limitations and Compliance
With the features and benefits discussed above, the scheme also has certain limitations and compliance formalities to be followed.
- The LRS imposes certain restrictions and reporting requirements to ensure compliance with regulations.
- Any violation or misuse of the scheme can result in penalties or legal consequences.
- Individuals need to keep track of their remittances, follow documentation guidelines, and report transactions as per RBI norms.
Besides this, profits from investments made under the LRS are taxable in India. Long-term capital gains (held for over two years) are taxed at 20%, while short-term gains are taxed at normal income tax rates. Additionally, a 5% Tax Collected at Source (TCS) applies to remittances exceeding INR 7,00,000.
Important Considerations under LRS
LRS cannot be used for margin trading, purchasing lottery tickets, or sending money to countries identified as non-cooperative by the Financial Action Task Force (FATF). Secondly, if a remittance exceeds USD 250,000 for specific reasons like medical treatment or education, prior approval from the RBI is required.
This was all about the Liberalised Remittance Scheme of RBI, its features, benefits and limitations. Understanding this scheme can help you make informed decisions about making remittances.
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FAQs on the Liberalised Remittance Scheme
The RBI introduced the LRS scheme or Liberalised Remittance Scheme to facilitate hassle-free foreign exchange. Under this scheme, an Indian resident can transfer funds of up to USD 250,000 in financial years.
Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year
Yes, it is compulsory to have a PAN for all the transactions under the Liberalised remittance scheme.
The LRS is for people who are residents of India as defined by the Foreign Exchange Management Act (FEMA). It cannot be used by corporations, partnership firms, Hindu Undivided Family (HUF), trusts, etc.
No, you can make your remittance in any freely convertible foreign currency.
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