RBI Circular A.P. (DIR Series) 23/2024 – Liberalised Remittance Scheme (LRS) Explained
In a recent development, the Reserve Bank of India issued the RBI circular A.P. (DIR Series) 23/2024, bringing renewed focus to one of its most significant facilities for resident individuals: the liberalised remittance scheme. This scheme is a cornerstone of India’s foreign exchange regulations, allowing individuals to send money abroad for a wide range of purposes with relative ease. For salaried professionals funding their child’s education overseas or planning an international trip, and for small business owners looking to make strategic investments abroad, understanding this scheme is not just beneficial—it’s essential. This comprehensive guide will break down what the LRS is, its limits, the latest RBI updates, permissible uses, and the step-by-step process, providing you with the clarity needed to navigate your global financial transactions confidently.
What is the Liberalised Remittance Scheme (LRS)?
A Simple Explanation for Indian Residents
At its core, the liberalised remittance scheme explained India is an RBI provision that empowers resident individuals to freely send up to USD 250,000 (or its equivalent in another currency) abroad per financial year. This can be for a variety of purposes, covering both personal needs (current account transactions) and investments (capital account transactions). The primary purpose of the scheme is to simplify and liberalise the process of foreign remittances. It effectively removes the need for individuals to seek prior approval from the RBI for most transactions that fall within this specified limit. This facility makes it significantly easier for LRS for Indian residents to manage their international financial commitments, from supporting family members living abroad to diversifying their investment portfolios across the globe.
Who is Eligible to Use the LRS?
The eligibility criteria for the Liberalised Remittance Scheme are straightforward but crucial to understand. The scheme is available to all resident individuals, which includes minors. In the case of a minor, the remittance can be made, but the LRS declaration form must be countersigned by their natural guardian.
However, it’s equally important to know who is not eligible. The LRS facility is strictly for individuals. It is not available for:
- Corporates
- Partnership firms
- Hindu Undivided Families (HUF)
- Trusts
- Other non-individual entities
This distinction is particularly important for small business owners who might operate through these structures. While they can use the LRS in their personal capacity, their business entities cannot.
Key Features of the LRS as per RBI Guidelines
Understanding the core features of the scheme is the first step toward using it effectively and compliantly. The RBI guidelines for LRS India have laid out clear rules regarding limits and the types of transactions that are permitted.
The Annual LRS Limit
The most critical feature of the LRS is its financial cap. Currently, the limit is USD 250,000 per person per financial year. The Indian financial year runs from April 1st to March 31st.
A key point to remember is that this is a consolidated limit. It’s not USD 250,000 for travel and another USD 250,000 for investments. The cap covers the total of all remittances made by an individual under the scheme in a single financial year, regardless of the purpose. For example, if you spend USD 50,000 on a foreign trip and invest USD 200,000 in overseas stocks in the same year, you have reached your LRS limit of USD 250,000 for that financial year.
Permissible Current Account Transactions Under LRS
Current account transactions relate to day-to-day expenses and do not typically involve the creation of assets. The scheme is incredibly versatile, and knowing how LRS works for Indian citizens for these transactions is vital. Permissible uses include:
- Private visits to any country (except for travel to Nepal and Bhutan, which is governed by different rules).
- Gifts or donations to friends, relatives, or recognized charities abroad.
- Going abroad for the purpose of employment.
- Maintenance of close relatives who are living overseas.
- Travel for business, attending international conferences, or undergoing specialized training.
- Covering expenses related to medical treatment in a foreign country.
- Funding studies abroad, including tuition fees, living expenses, and other related costs.
Permissible Capital Account Transactions Under LRS
Capital account transactions are those that alter the assets or liabilities of an individual, primarily related to investments. For those interested in understanding liberalised remittance scheme India for wealth creation, this is the most important part. Permitted transactions include:
- Opening a foreign currency account abroad with a bank.
- Purchase of immovable property overseas.
- Making overseas investments in shares, mutual funds, debt instruments, and other financial assets.
- Setting up wholly-owned subsidiaries and joint ventures abroad, a particularly useful provision for entrepreneurs and small business owners looking to expand their operations globally.
- Extending loans in Indian Rupees to Non-Resident Indians (NRIs) or Persons of Indian Origin (PIOs) who are defined as close relatives under the Companies Act, 2013.
The Step-by-Step Process for LRS Remittance
Making a remittance under the LRS is a structured process involving your bank and specific documentation. Here’s a simple breakdown of the steps involved.
Step 1: Approach an Authorised Dealer (AD) Bank
Your first point of contact is an Authorised Dealer (AD) Bank. These are commercial banks (like SBI, HDFC, ICICI, etc.) that have been specifically authorized by the RBI to deal in foreign exchange. You must have an account with the bank to initiate the remittance. A crucial prerequisite for any transaction under LRS is having a Permanent Account Number (PAN), as it is mandatory. The legal basis for this is detailed in Section 139A: Importance and Application of Permanent Account Number (PAN).
Step 2: Documentation – Form A2 and Declaration
You will be required to fill out certain forms. The primary document is Form A2, which is a standard application-cum-declaration form for outward remittances. In this form, you will need to specify the purpose of the remittance and provide details of the beneficiary.
Alongside Form A2, you must submit a declaration. In this declaration, you state that the total amount of foreign exchange you have purchased or remitted during the current financial year, including the present transaction, is within the overall LRS limit of USD 250,000. The bank relies on this declaration for compliance.
Step 3: Understanding Tax Collected at Source (TCS)
A significant aspect of LRS remittances is Tax Collected at Source (TCS). This is not an additional tax; rather, it’s an advance tax collected by your bank (the authorised dealer) on behalf of the government when you send money abroad. You can claim this amount back as a credit against your total tax liability or as a refund when you file your Income Tax Return (ITR).
The TCS rates vary based on the purpose of the remittance:
| Purpose of Remittance | Threshold Amount | TCS Rate |
|---|---|---|
| Foreign education (if financed by an education loan) | Above ₹7 lakh | 0.5% |
| Education or medical treatment (self-funded) | Above ₹7 lakh | 5% |
| All other purposes (e.g., investment, travel, gift) | Above ₹7 lakh | 20% |
Actionable Tip: Always keep a record of the TCS deducted on your remittances. This amount will be reflected in your Form 26AS, and you can easily claim it while filing your tax returns. For a detailed walkthrough, our article on How to Claim a TDS Refund: A Simple Guide can help. For more details on filing, you can visit the Income Tax Department website.
Benefits and Prohibited Transactions
While the LRS is designed to be liberal, it comes with its own set of advantages and clear restrictions.
Key Benefits of the Liberalised Remittance Scheme in India
The scheme offers several compelling advantages for resident individuals. The primary benefits of liberalised remittance scheme in India are:
- Financial Freedom: It empowers individuals to diversify their investments beyond Indian markets, providing access to global opportunities and reducing portfolio risk.
- Simplicity and Ease: The process is highly streamlined with minimal paperwork and does not require prior RBI approval, making it much faster and more convenient than other routes.
- Wide-Ranging Versatility: The scheme covers a vast array of personal and business-related needs, from funding education and medical care to purchasing property and setting up businesses abroad.
- Supports Global Lifestyles: In an increasingly interconnected world, LRS is a crucial tool for funding children’s education, supporting family members settled abroad, and managing international assets.
What You CANNOT Do Under LRS
The RBI has explicitly prohibited certain transactions under the LRS to prevent capital flight for undesirable purposes. These rules fall under a broader framework, which you can learn about in our guide, FEMA Act 1999 Explained: A Complete Guide for Beginners. You cannot use the LRS for:
- Any form of speculative trading, such as margin trading or dealing in foreign exchange markets.
- Remittances for purchasing lottery tickets, sweepstakes, or banned publications.
- Remittances to countries identified by the Financial Action Task Force (FATF) as “non-cooperative” or having strategic anti-money laundering deficiencies.
- Direct or indirect capital account remittances to individuals and entities residing in these non-cooperative countries and territories.
For a complete and updated list of these restrictions, you should always refer to Schedule I and Schedule II of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, available on the official RBI website.
Conclusion
The Liberalised Remittance Scheme (LRS) is undoubtedly a powerful and enabling facility for Indian residents, offering a simple and legal gateway to the global financial landscape. With its generous annual limit of USD 250,000, it caters to a wide spectrum of needs, from personal commitments to strategic investments. However, its effective use hinges on a clear understanding of the rules—knowing the permissible transactions, adhering to the documentation process, and accounting for Tax Collected at Source (TCS). Staying updated with notifications like the RBI circular A.P. (DIR Series) is crucial to ensure full compliance and avoid any potential penalties.
Navigating FEMA regulations and LRS compliance can be complex. If you need expert guidance on your foreign remittances or help with tax planning around TCS, contact the experts at TaxRobo today for a consultation.
Frequently Asked Questions (FAQs)
1. Can my spouse and I combine our LRS limits for a joint overseas property purchase?
Yes. The LRS limit is applicable on an individual basis. Therefore, family members can pool their respective limits for a permissible transaction. For example, you and your spouse can collectively remit up to USD 500,000 (USD 250,000 from each of you) in a single financial year to jointly purchase a property overseas.
2. Do I need to report my LRS transactions to the RBI myself?
No. As a resident individual, you are not required to file any direct reports with the Reserve Bank of India. The onus of reporting is on the Authorised Dealer (AD) bank through which you process the remittance. The bank is mandated to report all LRS transactions to the RBI on a regular basis.
3. Is the LRS limit of USD 250,000 also applicable to minors?
Yes, the liberalised remittance scheme is available to minors as well, and the same limit of USD 250,000 per financial year applies to them. However, for a minor to make a remittance, the LRS declaration form (part of Form A2) must be countersigned by their natural guardian. The guardian is responsible for ensuring the transaction is for a permissible purpose and adheres to all scheme guidelines.
4. Can I use the LRS to invest in cryptocurrencies abroad?
This is a regulatory grey area. The RBI’s official stance on cryptocurrencies has been cautious, and it has not explicitly permitted remittances under LRS for the purchase of such assets. Due to the lack of clear guidelines and the inherent risks associated with virtual currencies, most Authorised Dealer banks may refuse to process such transactions to avoid regulatory issues. It is highly advisable to avoid this or seek expert legal and financial advice before proceeding.
