What are the facilities available under LRS (liberalized remittance scheme)?

Liberalised Remittance Scheme (LRS) is a scheme introduced by RBI as liberalisation measure to facilitate Resident Individuals (RI) to freely remit funds up to USD 2,50,000/- outside India in a financial year (April to March) for any permissible current or capital account transaction or a combination of both.

Any resident individual including a minor is free to remit up to a certain amount in terms of US Dollars for overseas education, traveling abroad for business and private visits, to patients for medical treatment, or to a person for accompanying as an attendant to patient abroad, gifting and donation, investments in shares and property, maintenance to close relatives living abroad. Nevertheless, given incidents of misuse of the scheme in the names of ‘relatives’ the Reserve Bank of India has now narrowed the definition of relatives to immediate relatives such as parents, spouses, children, and their spouses under the ‘maintenance of close relative’ category of Liberalised Remittance scheme. The above modification to the scheme is done to check the outflow of funds due to misuse of the facility.

The permissible limit under the scheme (LRS) also includes/subsumes remittances for current account transactions available to resident individuals under Para 1 of Schedule III to Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015 dated May 26, 2015.

There are no restrictions on the frequency of remittances under the scheme. However, the total amount of foreign exchange purchased from or remitted through, all sources in India during a financial year should be within the cumulative limit of USD 2,50,000. The remittances can be made in any freely convertible foreign currency. Once a remittance is made for an amount up to USD 2,50,000 during the financial year, a resident individual would not be eligible to make any further remittances under this scheme, even if the proceeds of the investments have been brought back into the country. A resident is eligible to remit up to the limit of USD 2, 50,000 per Financial Year (April to March) for any of the following current account transactions under the Scheme. Release of foreign exchange exceeding USD 2, 50,000 requires prior permission from the Reserve Bank of India.

For permissible current account transactions, if the applicant seeking to make the remittance is a new customer of the bank, Authorised Dealers should carry out due diligence on the opening, operation, and maintenance of the account. Further, the AD should obtain bank statements for the previous year from the applicant to satisfy themselves regarding the source of funds. If such a bank statement is not available, copies of the latest Income Tax Assessment Order or Return filed by the applicant may be obtained. The Full Fledged Money Changers (FFMCs, who cannot maintain the customer’s account, are required to ensure that the “Know Your Customer” guidelines and the Anti-Money Laundering Rules in force have been complied with while allowing the current account transactions. For buying foreign currency from authorized dealers for outward remittance under LRS, the buyer has to submit declaration form A2 to the bank. In case of the remitter being a minor, form A2 must be countersigned by the minor’s natural guardian. As per guidelines, for effecting current account remittances not exceeding USD 25,000 Authorised Dealers may obtain only a simple letter from the applicant containing the basic information, viz., names and the addresses of the applicant and the beneficiary, amount to be remitted and the purpose of remittance. However, this is subject to the condition that the payment is made by a cheque drawn on the applicant’s bank account or by a Demand Draft. AD banks shall prepare dummy A-2 to enable them to provide the purpose of remittance for statistical inputs for the Balance of Payment. In all cases, PAN details are a must for outward remittances under LRS.

The remittances from all the family members under the Scheme can be consolidated subject to individual family members complying with the terms and conditions of the scheme. Nevertheless, clubbing is not permitted by other family members for capital account transactions such as opening a bank account/investment/purchase of property, if they are not the co-owners/co-partners of the overseas bank account/ investment/property. Normally, a resident cannot gift to another resident, in foreign currency, or for the credit of the latter’s foreign currency account held abroad under LRS.  Normally, the scheme (LRS) does not envisage the extension of the fund and non-fund-based remittance to facilitate remittances for capital account transactions. However, AD banks may allow capital account (funded and non-funded) transactions under LRS to facilitate current account remittances under the Scheme.  Click here to know ‘What type of capital account transactions are permitted under LRS scheme?’. The scheme also has a provision for a foreign exchange remittance facility to the residents for non-trade current account transactions,. In addition to that  Entities other than individuals can remit funds outside India for certain purposes which are stipulated under Para 1 of Schedule III to FEM (CAT) Amendment Rules, 2015. Besides, under LRS, a resident may lend a Rupee loan to an NRI/PIO subject to certain conditions. Entities other than individuals can also remit funds outside India for certain purposes which are stipulated under Para 1 of Schedule III to FEM (CAT) Amendment Rules, 2015.

Note: The remittances through LRS cannot be used for trading on foreign exchange markets, purchase of Foreign Currency Convertible Bonds issued abroad by Indian companies, and margin or margin calls to overseas exchanges and counterparties. Further, individuals are not allowed to send money to countries identified as ‘non-cooperative jurisdictions’ by the Financial Action Task Force (FAFT) and remittances to entities identified as posing terrorist risks.

Before the Budget 2023, for foreign equity investments under the Liberalised Remittance Scheme, the TCS was levied at the rate of 5% for remittances exceeding Rs 7 Lakh. In the budget, Nirmala Sitharaman, the Finance Minister of India, has suggested changes in the TCS structure.  Tax Collected at Source applies when remitting money abroad. The remitting entity deducts this income tax before transferring the funds overseas. Starting October 1, 2023, any personal remittances above 7 lakh rupees annually will incur a 20% TCS rate on the amount exceeding this threshold. Here, it is crucial to note that sending money doesn’t only mean sending it to someone. It could even imply touring abroad, shopping, investing abroad, purchasing assets, etc. However, medical treatment or education transfers remain exempt from TCS.  However, TCS collected by the bank can be claimed as an income tax refund while filing IT returns. Alternatively, you can avail of credit while filing the ITR/calculating your advance taxes.

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