Liberalised Remittance Scheme (LRS): Sending Money Abroad Legally

Planning to fund your child’s education overseas, invest in international stocks, or send money to support family abroad? You’re not alone. But navigating the rules for sending money out of India can be confusing. To make this process clear and legal, the Reserve Bank of India (RBI) has created a specific framework for individuals. This crucial framework is called the Liberalised Remittance Scheme (LRS). This comprehensive guide will break down the LRS, helping salaried individuals and small business owners understand the rules for sending money abroad legally India, including the limits, permissible uses, and critical tax implications.

What is the Liberalised Remittance Scheme (LRS)?

The Liberalised Remittance Scheme is a cornerstone of India’s foreign exchange regulations, designed to simplify the process for resident individuals to send money outside the country. It essentially provides a liberalised window for remittances, moving away from the need for case-by-case approvals for many common transactions. The primary goal of this scheme is to facilitate ease of living and investment for Indian residents, allowing them to participate more freely in the global economy. By setting a clear annual limit and defining the scope of transactions, the RBI aims to balance individual freedom with the need to manage the country’s foreign exchange reserves and prevent illicit financial flows. The scheme empowers individuals to meet their global financial commitments, from personal needs like family maintenance to investment goals like purchasing property or stocks abroad, all within a legally sanctioned and transparent framework.

A Deep Dive into the RBI’s Framework

At its core, the LRS is a set of guidelines issued by the RBI that allows resident individuals to freely remit funds abroad up to a specified limit for permissible current or capital account transactions, or a combination of both. The current LRS limit is USD 250,000 per person per financial year, which runs from April 1st to March 31st. This limit is uniform for all permissible transactions and is subject to revision by the RBI based on prevailing macroeconomic conditions. It is crucial for remitters to stay updated with the latest regulations, as compliance is mandatory. For the most current and detailed regulations, it is always recommended to refer to the official RBI Master Direction on LRS.

Who is Eligible for LRS?

The Liberalised Remittance Scheme India is available to all resident individuals, which is a key distinction. This includes minors, although remittances on behalf of a minor must be made by their legal guardian. The eligibility is determined by the definition of a “person resident in India” under the Foreign Exchange Management Act (FEMA), 1999. It is important to note who is not eligible to use this facility. The LRS is exclusively for individuals. Other entities such as:

Corporations
Partnership firms
Hindu Undivided Family (HUF)
Trusts
Other legal entities

These entities are governed by different sets of FEMA regulations for their overseas transactions and cannot use the individual LRS limit.

Permissible Transactions Under the Liberalised Remittance Scheme

Understanding what you can use the LRS for is the most critical aspect of the scheme. The RBI has broadly categorized permissible transactions into two types: Current Account Transactions and Capital Account Transactions. This division helps individuals clearly identify whether their intended purpose for sending money abroad is covered under the scheme. Whether you are supporting a family member or making a strategic international investment, the LRS provides a legitimate channel, making it a vital tool for LRS for Indians Abroad and their families back home.

Current Account Transactions (Common Uses)

These transactions are generally for day-to-day expenses, personal needs, and other non-investment purposes. They are the most common uses of the LRS facility. The permissible uses include:

Private Visits: Covering expenses for travel to any country, except for Nepal and Bhutan, where remittances are governed by separate rules.
Gift or Donation: Sending money as a gift to a non-resident individual or making a donation to an overseas charity or organization.
Going Abroad for Employment: Remitting initial funds needed to cover living expenses and other setup costs when moving to another country for work.
Emigration: Transferring funds as part of the process of permanently moving to another country.
Maintenance of Close Relatives Abroad: This is a key use case for supporting family members living overseas, covering their living costs, rent, and other essential expenses.
Travel for Business/Conferences: Paying for expenses related to attending business meetings, international conferences, or training programs.
Medical Treatment Abroad: Covering the costs of medical consultations, hospital bills, and related expenses for treatment in another country.
Studies Abroad: Paying for university tuition fees, accommodation, living expenses, and other costs associated with pursuing education overseas.

Capital Account Transactions (Investments & Assets)

These transactions involve the purchase of assets or making investments outside India. The LRS has opened up significant opportunities for Indian residents to diversify their investment portfolios globally. Permissible capital account transactions include:

Opening a foreign currency account with a bank outside India.
Purchase of immovable property abroad.
Making investments overseas, which includes buying shares, investing in mutual funds, venture capital funds, and debt instruments.
Setting up Wholly Owned Subsidiaries (WOS) or Joint Ventures (JV) abroad for bonafide business purposes, which is particularly relevant for small business owners and entrepreneurs (though this is subject to specific Overseas Direct Investment (ODI) regulations).
Extending loans in Indian Rupees to Non-Resident Indians (NRIs) who are defined as relatives under the Companies Act, 2013.

Prohibited Transactions: What You CANNOT Do Under LRS

While the scheme is “liberalised,” it is not without its restrictions. The RBI has explicitly prohibited certain transactions to protect the country’s financial integrity and prevent the misuse of funds. Adhering to these rules is non-negotiable, and understanding these Money Transfer Regulations India is crucial for anyone looking to send money abroad. Any attempt to remit funds for these prohibited purposes can lead to severe penalties under FEMA.

The following activities are strictly forbidden under the LRS:

Remittance for any purpose that is specifically prohibited under Schedule-I (like the purchase of lottery tickets, banned magazines, football pools, etc.) or any item restricted under Schedule-II of the Foreign Exchange Management (Current Account Transactions) Rules, 2000.
Sending money to be used for margins or margin calls to overseas exchanges or counterparties.
Remittances for any kind of trading in foreign exchange (Forex).
Sending capital account remittances to countries that have been identified by the Financial Action Task Force (FATF) as “non-co-operative” or as having strategic anti-money laundering deficiencies.
Directly or indirectly sending funds to individuals and entities that are identified as posing a significant risk of committing acts of terrorism.

Step-by-Step Guide: How to Send Money Abroad Under LRS

Once you’ve confirmed that your purpose is permissible, the process of sending money is quite straightforward. The system is designed to be transparent and is facilitated through regulated financial institutions, ensuring that these are Legal Money Transfer Options India. Following these steps will ensure a smooth and compliant transaction.

Step 1: Approach an Authorised Dealer (AD)

All remittances under the LRS must be routed through an Authorised Dealer. Authorised Dealers (AD Category-I) are typically major public and private sector banks that have been authorized by the RBI to deal in foreign exchange. You will need to have an account with the bank you approach for the remittance.

Step 2: Fill Out Form A2 and Provide Documents

The core of the LRS transaction is the documentation. You will be required to fill out and sign Form A2, which is a declaration form. In this form, you declare the purpose of the remittance and confirm that you are complying with the LRS rules and limits. Along with Form A2, you must provide certain documents:

PAN Card: A copy of your PAN card is mandatory for every single transaction under the LRS. The bank will link the remittance to your PAN.
KYC Documents: Your passport, Aadhaar card, or other valid proof of identity and address will be required for Know Your Customer (KYC) verification.
Supporting Documents: Depending on the purpose, the bank may ask for additional proof. For instance:
- Studies Abroad: University admission letter and fee schedule.
- Medical Treatment: An estimate from the overseas hospital or doctor.
- Property Purchase: A copy of the sale agreement or contract.

Step 3: Understand Tax Collected at Source (TCS)

A critical component of the LRS process is Tax Collected at Source (TCS). The government has mandated TCS on most foreign remittances to track large overseas transactions. Understanding these tax rules is vital to avoid any surprises.

Here is a breakdown of the current TCS rates:

Purpose of Remittance	Remittance Amount in a Financial Year	TCS Rate
For Education (funded by a loan)	Up to ₹7 lakh	0%
For Education (funded by a loan)	Above ₹7 lakh	0.5%
For Education (self-funded) or Medical Treatment	Up to ₹7 lakh	0%
For Education (self-funded) or Medical Treatment	Above ₹7 lakh	5%
All Other Purposes (Investment, Gift, Property etc.)	Any amount	20%

Actionable Tip: The good news is that the TCS paid is not a final tax. It is an advance tax collected on behalf of the government. You can claim this amount as a credit against your total income tax liability when you file your Income Tax Return (ITR). If the TCS paid is more than your total tax liability, you will receive a refund. For the most accurate information on TCS rates and rules, you can visit the Income Tax Department’s official website.

Conclusion

The Liberalised Remittance Scheme is an essential and empowering facility for resident Indians, providing a clear and legal pathway to manage global financial needs and investments. To use it effectively, remember the three key pillars: the annual limit of USD 250,000, the clear distinction between permissible and prohibited transactions, and the mandatory implications of Tax Collected at Source (TCS). By following the LRS framework and providing the correct documentation through an Authorised Dealer, you can ensure that your international transactions are smooth, efficient, and fully compliant with Indian law.

Navigating Money Transfer Regulations India and their tax implications can be complex. If you need expert guidance on LRS, TCS compliance, or filing your Income Tax Return to claim your TCS credit, contact the specialists at TaxRobo today for a consultation. Our experts can help you manage your finances with confidence. Book your TaxRobo Online CA Consultation Service now!

Frequently Asked Questions (FAQs)

Q1. Can I use the Liberalised Remittance Scheme to invest in cryptocurrency abroad?

A: No. The Reserve Bank of India (RBI) has explicitly clarified that remittances under the LRS cannot be used for purchasing cryptocurrencies, virtual currencies, or any other crypto-assets. This falls under prohibited transactions.

Q2. Is the LRS limit of USD 250,000 per person or for the entire family?

A: The limit is per individual. Each member of a family, including minors (with transactions facilitated by their guardian), is eligible for a separate LRS limit of USD 250,000 per financial year. For example, a family of four can legally remit up to USD 1,000,000 in a year.

Q3. Can I carry forward my unused LRS limit to the next financial year?

A: No. The LRS limit is strictly applicable for a single financial year (April 1st to March 31st). Any portion of the USD 250,000 limit that remains unused at the end of the financial year automatically lapses. It cannot be carried forward to the next year.

Q4. What happens if I need to remit more than USD 250,000 for a genuine purpose like medical treatment?

A: In exceptional cases where the remittance amount required exceeds the LRS limit for genuine and documented purposes like urgent medical treatment or higher education, you can apply for special permission from the Reserve Bank of India (RBI). This application must be submitted through your Authorised Dealer bank with all necessary supporting documents.