What is the Liberalised Remittance Scheme? Let’s Simplify 

Sending funds overseas from India used to be quite challenging. Recognizing the need for improved accessibility, the Indian government took action. In 2004, the Reserve Bank of India (RBI) introduced the “Liberalized Remittance Scheme,” enabling Indian citizens to remit funds up to a specified limit outside India. Let us understand what is LRS through this blog.

What is the LRS or Liberalized Remittance Scheme?

The full form of LRS is the Liberalised Remittance Scheme. It is a rule set by the Reserve Bank of India (RBI) that allows residents of India to send money abroad. Under this scheme, individuals can remit up to USD 250,000 per financial year for certain purposes like education, medical treatment, travel, gifts, and donations. 

However, this scheme is only applicable to individuals and not to firms, corporations, partnerships, or HUFs. Certain items are not allowed to be remitted under the LRS, and taxes may apply. Non-residential citizens cannot use this scheme, but they can transfer funds from NRO, NRE, and FCNR accounts.

Who is Eligible for LRS?

To be able to remit funds across the country, the following are the eligibility criteria that should be fulfilled. 

• You should be an Indian citizen
• Any individual including minor is eligible for LRS 
• No corporate, partnership, HUF firms are eligible. 
• In case of a minor, the LRS declaration form should be signed by the minor’s guardian. 

What Are the Prohibited Items Under LRS?

Below mentioned items are prohibited under the Liberalized Remittance Scheme:

• Remittance for purposes specifically prohibited, such as buying lottery tickets or restricted items.
• Sending money from India for margins or margin calls to overseas exchanges or parties.
• Remittance for buying Foreign Currency Convertible Bonds (FCCBs) issued by Indian companies in the overseas secondary market.
• Sending money for trading in foreign exchange abroad.
• Sending money to countries identified as “non-cooperative countries and territories” by the Financial Action Task Force (FATF).
• Sending money to individuals and entities identified as posing a significant risk of terrorism.
• Gifting foreign currency from one resident to another resident for the credit of their foreign currency account held abroad under LRS.

What Types of Transactions are Permitted Under Liberalised Remittance Scheme?

Following are the transactions of up to USD 250,000 are allowed on capital and current accounts: 

Capital Account

• Private visits to all countries except Nepal and Bhutan 
• Gifts
• Donation
• Emigration
• Visiting overseas for employment
• Maintenance of close relatives overseas 
• Travel for business
• Travel for medical services 
• Studies overseas including that of a spouse of your children

Current Account

• Opening of a foreign currency account abroad 
• Property purchase
• Making any investment abroad such as equity, mutual funds, venture capital funds, promissory notes etc.
• Setting up self owned subsidiaries and joint ventures
• Remittance for studies abroad, including that of a spouse and children, including for studies in IFSCs located in India

Tax Imposed on LRS 

Liberalized Remittance Scheme is subject to taxes depending on the remittance: 

• Any profit made from abroad investments under LRS is subject to tax in India depending on the holding period. 
• Long term capital gains: Any investment held for 2 years or more is a long-term capital gain and shall be levied a tax of 20% on the total amount of the profit.
• Any investments less than 2 years, fall in basic income tax slabs and tax is levied accordingly.
• Any LRS exceeding Rs. 7,00,000 per financial year will be imposed 5% TCS.
• Any payment that is made using debit, credit or forex cards and exceeds Rs. 7,00,000 in a financial year is subject to 20% TCS.
• Remittances for international education that exceed Rs 7,00,000 and are obtained through a loan from an authorized financial institution is subject to TCS rate of 0.5%.
• No TCS is applicable on remittance through LRS that is below and is for any educational expense.  

Required Documents for LRS

1. Identity Documents:Permanent Account Number (PAN), Aadhaar Number
2. Address Documents:Proof of residential address (e.g. utility bills, bank statements), Email ID, Alternate mobile number
3. Remittance Documents:Form A2 (for all transactions under LRS), Proof of income (e.g. salary slips, tax returns)
4. Additional Documents for Specific Purposes:For education abroad: Admission letter, student’s passport, For medical treatment: Medical records, doctor’s prescription, For emigration: Proof of emigration requirement
5. Bank Account Documents:Bank account details (for capital account transactions), Cancelled cheque
6. Ownership Documents:Ownership documents (e.g. sale deed, layout plan) in PDF format

The specific documents required may vary depending on the purpose of the remittance and the bank’s policies. It’s advisable to check with your bank or authorized dealer for the exact list of documents needed for your particular case.

The LRS scheme has facilitated international trade, foreign investment, and more. It’s crucial to understand its eligibility criteria and documentation requirements to ensure smooth transactions.