Everything you need to know about Liberalised Remittance Scheme

July 11, 2024
Registrationwala

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Everything you need to know about Liberalised Remittance Scheme

Everything you need to know about Liberalised Remittance Scheme

July 11, 2024

Registrationwala

The Liberalised Remittance Scheme (LRS) is a scheme launched by the Reserve Bank of India (RBI) in 2004. Under the LRS scheme, resident Indians are allowed to remit a certain amount of money to another country during a financial year for the purpose of investment and expenditure.

To find out all the important details related to the Liberalised Remittance Scheme, go through this blog post.

What is Liberalised Remittance Scheme?

Liberalised Remittance Scheme is an important RBI policy which was launched in 2004. It allows Indian residents to transfer/remit their money abroad for various reasons. The scheme permits residents of India to transfer a specific sum of money in a financial year for certain purposes like education, travel, investments, etc. to beneficiaries outside India. It liberalizes and simplifies the process of sending money overseas for legitimate purposes.

Features of Liberalised Remittance Scheme

Here are some of the features of Liberalised Remittance Scheme:

Residents, including children, are qualified to remit a certain amount each fiscal year under the LRS.
Under the Liberalized Remittance Scheme, corporations, HUFs, partnership firms, and charitable trusts are not eligible.
Even though you are an Indian citizen but not an Indian resident, FEMA (The Foreign Exchange Management Act, 1999) regards you as an NRI if you are an Indian living abroad for work-related reasons. As a result, you are not eligible for remittances under LRS.
No limit is set for the number of transactions which can be made. However, there is a fixed permissible limit of USD 250,000 per person in a financial year and the foreign transaction’s value cannot exceed this limit.
An individual requires RBI’s approval if they wish to remit more than the permissible limit.
Eligible purposes for remittance under LRS scheme include investment in securities, travel, education, medical treatment, gifting and so on.
The individuals must ensure their compliance with RBI guidelines for documentations and reporting requirements regarding transactions conducted under this scheme.
For carrying out transactions under LRS, it is a mandatory requirement to have a PAN.
Before an individual makes any sort of remittances, he has to maintain a bank account with the bank for a minimum of one year.

Remittances under Liberalised Remittance Scheme

Permissible Remittances

The remittances which are permissible under LRS can be categorized as capital account transactions and current account transactions.

According to Foreign Exchange Management Act (FEMA), current account transactions include payments made towards foreign trade, banking, credit facilities, living expenses abroad and services.
In contrast, capital account transactions include changes in assets and liabilities held abroad by resident Indians.

The table below lists the permissible capital and current account transactions under LRS:

Current Account Transactions	Capital Account Transactions
Abroad Travel (Except Nepal and Bhutan)	Property Purchase Abroad
Gifts/donations made to legitimate beneficiaries	For opening, holding, and maintaining a foreign currency account with an abroad bank
Abroad travel for employment purpose	For investment abroad (such as buying and holding of shares of listed and unlisted companies, debt instruments, mutual funds, VC funds, etc.)
Emigration	Providing loans to NRI relatives
To cover cost of the living or medical costs of close relatives who live abroad	To set up a foreign wholly owned subsidiary (WOS) or Joint Venture (JV) for the purpose of legitimate business, in compliance with regulations under Overseas Direct Investment (ODI).
Trips for business purpose	-
Payment abroad for education fee	-

Non-Permissible Remittances

The remittances which are not permissible or prohibited under LRS are as follows:

Remittances such as purchase of lottery tickets, sweepstakes, proscribed magazines, etc. which are prohibited under Schedule I.
Remittances have been restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules.
Remittances from India for margins or margin calls to overseas counterparties or exchanges.
Remittances issued by Indian companies in the overseas secondary market for purchasing foreign currency convertible bonds.
Remittance for trading in forex abroad
Capital account remittances to countries regarded as ‘non-cooperative countries and territories’ by FATF.
Remittances to individuals and entities that pose a significant risk of committing terror acts as advised separately to the banks by RBI.
Gifting by a resident to another resident in currency of another country.

What are the Advantages of Liberalised Remittance Scheme?

The advantages of Liberalised Remittance Scheme are mentioned below:

LRS provides a safe and efficient way of transferring funds for resident Indians for the education and living expenses for their children studying abroad.
It facilitates resident Indians who want to invest in foreign assets and form a diversified portfolio.
If resident Indians travel abroad for getting a medical treatment, they can pay for it easily without any paperwork or protocol hassle.

What are Formalities and Documentation for LRS?

Resident Indians may use a demand draft in their name or the name of a beneficiary to make outward remittances under LRS. The beneficiary must provide a self-declaration in the required manner. For remittance purposes, resident Indians may also open, keep, and hold foreign currency accounts with a bank outside of India.

For LRS, the following is required:
For remittance purposes, resident Indians are required to have a designated branch of an authorized dealer bank.
To purchase foreign exchange, submit Form A2.
File Permanent Account Number (PAN) submission.
Resident Indians are required to follow the prescribed Anti-Money Laundering (AML) and Know Your Customer (KYC) guidelines.

Conclusion

The Liberalised remittance scheme is a scheme of the RBI. Under this scheme, all resident individuals, including children, are permitted to freely remit up to USD 2,50,000 per financial year for any permissible current or capital account transaction or a combination of both. Moreover, resident Indian can avail of foreign exchange facility for reasons mentioned in Schedule III of FEM (CAT) Amendment Rules 2015, within the limit of USD 2,50,000 only. When LRS was originally introduced, the limit was USD 25,000. However, the limit got revised in stages with the changing economic conditions. LRS is not available to corporates, partnership firms, HUF and Trusts.

Frequently Asked Questions (FAQs)

Q1. How regularly can an Indian resident send money from India?

A. You can send money as regularly abroad as you want to in a financial year. However, the total amount of forex purchased from or remitted through all the sources in India during a financial year must not exceed the total limit of $250,000. You will require RBI’s approval if you want to remit more than this limit.

Q2. Is PAN a mandatory requirement for outward remittance?

A. Yes, it is a mandatory requirement to have a Permanent Account Number or PAN for any and all transactions made under the liberalised remittance scheme.

Q3. Is remittance under LRS taxable?

A. Outward foreign remittances are subject to Tax Collected on Source. Foreign remittances beyond Rs 7,00,000 in a year are subject to 20% TCS. This is applicable on sending money abroad, international travel among other remittances.

Q4. Can TCS be claimed on LRS?

A. Yes, TCS can be claimed by resident Indians. For this, they are required to fill out Form 26AS at the time of filing ITR.

Also Read: How to start a currency exchange business in India?