- What is the Liberalised Remittance Scheme (LRS)?
- Who Can Remit Funds Using LRS?
- What is the Consolidated Liberalised Remittance Scheme (LRS)?
- What Types of Transactions are Permitted Under LRS?
- What Types of Transactions Are Prohibited?
- TCS on Liberalised Remittance Scheme
- Documents For Liberalised Remittance Scheme
- Frequently Asked Questions
What is the Liberalised Remittance Scheme (LRS)?
The Liberalised Remittance Scheme (LRS) enables residents of India to transmit up to USD 2,50,000 or its equivalent overseas every Financial Year (April-March). LRS allows you to spend money abroad on things such as education, buying stocks and other assets, travel, medical care, and more. Spending on presents, donations, and the maintenance of distant relatives are additional options. With foreign banks, you can open and maintain accounts in foreign currency to carry out such transactions. Furthermore, to enable such transactions between 2 parties, the banks use PAN as a verification mechanism.
Who Can Remit Funds Using LRS?
Following are the persons who can remit funds using LRS:
- Every individual who is a resident of India can remit funds using the LRS scheme.
- Even a minor is eligible to remit funds using LRS. The minor must ensure that their guardian signs the declaration form.
- Family members can file a consolidated remittance request.
- Liberalised Remittance Scheme (LRS) is not available to firms, HUFs, companies, associations, or charitable trusts. However, in the case of a sole proprietorship firm, LRS is available since there is no separate entity. Hence, the limit of USD 2,50,000 is applicable to both the firm and the proprietor in total. Thus, the proprietor cannot claim USD 2,50,000 twice under their own name and the firm’s name.
What is the Consolidated Liberalised Remittance Scheme (LRS)?
For family members, the option of remittance consolidation under LRS is possible. The requirement is that every family member complies with the rules of the scheme.
For capital account transactions, clubbing by other family members is not allowed. This restriction is applicable on opening a bank account, purchasing property, or investments. The restriction is applicable only if these family members are not the co-partners or co-owners of the overseas bank account, investment, or property.
Additionally, under LRS, a resident cannot credit another resident’s foreign currency account kept outside of India with a gift in another currency.
What Types of Transactions are Permitted Under LRS?
The Liberalised Remittance Scheme (LRS) permits the following types of transactions for capital and current account transactions.
Capital Account Transactions
Such transactions that can change the value of any asset or liability. These assets and liabilities can be located in India as well as owned by an individual living outside India. On the contrary, such assets and liabilities can be located outside India and owned by an individual living in India.
Current Account Transactions
According to Section 2(j) of FEMA 1999 all such transactions that are not capital account transactions are current account transactions.
The following is a list of capital and current accounts transactions that are eligible under LRS:
|Capital Account Transactions|
|For opening and maintaining a Foreign Currency Account with a bank situated outside India|
|Purchase of property outside India|
|Making investments abroad. Such investments can be made in foreign equity shares, debt instruments, mutual funds, venture capital funds, etc.|
|Setting up a Wholly Owned Subsidiary (WOS) or a Joint Venture (JV) outside India for conducting business that shall be subject to Overseas Direct Investments Regulations|
|Extending loans to relatives who are NRIs (Non-resident Indians) as defined in the Companies Act, 2013 (including loans in INR)|
|Current Account Transactions|
|Undertaking private visits to any country (other than Nepal and Bhutan as they are prohibited)|
|Gift or donation|
|Going outside India for undertaking employment|
|Maintenance of close relatives outside India|
|Undertaking travel for your business or attending a conference or specialized training|
|Meeting medical expenses or check-up outside IndiaExpenses related to medical treatment outside India|
|Studies and education abroad|
|Any other current account transaction|
What Types of Transactions Are Prohibited?
The Liberalised Remittance Scheme (LRS) prohibits the following types of transactions:
- Schedule I of Foreign Exchange Management (Current Account Transaction) Rules, 2000.
- Schedule II of Foreign Exchange Management (Current Account Transaction) Rules, 2000.
- Capital account remittances to non-cooperative countries and territories as identified by the Financial Action Task Force (FATF) as available on the FATF website or as notified by the Reserve Bank of India.
- Direct or indirect remittances to those individuals and entities that pose significant risks of committing acts of terrorism as per the RBI.
- Trading in foreign exchanges outside India.
- Remittance to overseas exchanges or overseas counterparties from India for margins or margin calls.
Prohibited Transactions Under Schedule I
Following are the transactions prohibited under Schedule I:
- Remittance out of the amount of earnings from lottery winning, racing or riding or similar hobbies
- Remittance for purchasing lottery tickets, football pools, banned/proscribed magazines, sweepstakes, etc.
- Remittance of dividends made by any company. Furthermore, such companies have to mandatorily comply with dividend balancing.
- Remittance of interest income on the account balance. Moreover, the account is covered under the Non-Resident Special Rupee Account Scheme.
- Paying commission on exports. Moreover, such exports are intended towards equity investment in Joint Ventures or Wholly Owned Subsidiaries. These Joint Ventures or Wholly Owned Subsidiaries of an Indian company and registered outside India.
- Paying for ‘Call Back Services’ related to telephones.
TCS on Liberalised Remittance Scheme
- The Income Tax Act, 1961 provides for the collection of TCS at a rate of 5% on the amount of remittance under Liberalised Remittance Scheme.
- Every authorised dealer and seller of an overseas tour program package must deduct TCS. They must deduct TCS at the time of debiting the amount payable by the buyer or at the time of receipt of such amount, whichever is earlier.
- However, TCS is not applicable if the total amount of remittance during the financial year is less than Rs 7 lakhs. If the remittance exceeds Rs 7 lakhs then the TCS is applicable on the excess amount. For instance, if the remittance amount is Rs 8 lakhs. Then TCS will be applicable on Rs 1 lakh (Rs 8 lakhs – Rs 7 lakhs of exemption)
- The TCS collection limit of Rs 7 lakhs is not applicable on the purchase of overseas tour program packages.
- TCS at a rate of 1.5% is applicable if the remittance is received from a financial institution as an education loan.
- An authorised dealer means a person authorised by the Reserve Bank of India under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 (42 of 1999) to deal in foreign exchange or foreign security
Documents For Liberalised Remittance Scheme
For Liberalised Remittance Scheme an individual must designate a branch of the authorised dealer who will be responsible for the transactions. Every individual must submit Form A2 for remittance under LRS along with a copy of the PAN. Moreover, the individual must comply with Anti-Money Laundering guidelines. Lastly, the individual must complete their KYC Know Your Customer details.
Frequently Asked Questions
The LRS remittance limit is USD 2,50,000 for every financial year. Thus, an individual can remit multiple times during the financial year. However, the total amount of all such transactions must be less than USD 2,50,000.
Every resident of India can send money using the LRS system. LRS is applicable minors as well. However, the guardian’s countersignature on the LRS declaration form is necessary in the case of minors.
Yes, you can remit more than USD 2,50,000 for a medical treatment to be performed outside India. However, you will have to apply for approval from the RBI. Similarly, for the purpose of emigration and education outside India, an individual can remit more than USD 2,50,000 in a financial year. Moreover, prior approval of the RBI is mandatory in these cases as well.
If an individual uses their International Credit Card on their visit outside India then no prior approval from the RBI is required. However, if they purchase any prohibited items which are listed under the LRS then the restrictions will apply.
No, the limit of USD 2.5 lakhs is cumulative and is applicable to both capital and current accounts collectively.