Liberalised Remittance Scheme: Meaning, Limits, TCS & Rules
TL;DR - Summary
- What is the Liberalised Remittance Scheme? - The Liberalised Remittance Scheme (LRS) is an RBI framework that allows resident Indian individuals to send up to USD 250,000 abroad per financial year for permitted transactions. It covers activities like foreign education, travel, medical treatment, and investments in overseas stocks or property.
- What are the main features of the Liberalised Remittance Scheme? - The key features of the Liberalised Remittance Scheme (LRS) are: a USD 250,000 annual limit per individual, availability for all resident individuals only, no prior approval required, TCS on amounts crossing the threshold, and prohibition on certain high-risk transactions.
- Who is eligible to use the LRS? - All resident individuals, including minors, can remit funds under the LRS scheme, provided they have a valid PAN card. Companies, partnership firms, Hindu Undivided Families (HUFs), and charitable trusts are not eligible to use LRS.
- What are the permissible transactions under the Liberalised Remittance Scheme? - Various current and capital account transactions are permitted under the Liberalised Remittance Scheme (LRS). Current account transactions like education, medical treatment, and gifts and donations. Capital account transactions, like foreign bank accounts, investments, and real estate.
- What are the prohibited transactions under the Liberalised Remittance Scheme? - Buying lottery tickets and sweepstakes, using money for margin trading, investing money in FCCBs issued by Indian companies abroad, transferring money to individuals or entities under FATF jurisdiction, or identified as posing terrorism risk are prohibited under the Liberalised Remittance Scheme.
What Is Liberalised Remittance Scheme (LRS) in India?
The Liberalised Remittance Scheme (LRS) allows Indian residents, including minors to remit up to $250,000 outside India in a financial year. The Reserve Bank of India (RBI) introduced the framework in 2004 under the Foreign Exchange Management Act (FEMA), 1999.
You can use LRS for outward remittances related to current account transactions, including travel, education, medical treatment, and gifts. You can also use it for capital account transactions, including foreign investments, overseas property, and foreign bank accounts.
Besides the foreign remittance limit, you must follow two critical rules to take advantage of the LRS scheme:
- Send the money only through an Authorised Dealer (AD) Category-I bank
- Provide your Permanent Account Number (PAN) for every remittance made under the scheme
A common compliance mistake is treating every international transaction as LRS. LRS is for resident individuals sending money abroad. If your business is receiving payments from overseas customers, that is an inward remittance under a different set of FEMA rules. Keep the two apart when you assess documentation, reporting and tax, because using LRS as the reference point for incoming business payments sends you down the wrong compliance path.
What are the Key Features of Liberalised Remittance Scheme?
The key features of the Liberalised Remittance Scheme (LRS) include a USD 250,000 annual limit per individual, availability for all resident individuals only, no prior approval required, TCS on amounts crossing the threshold, and prohibition on certain high-risk transactions.
Also keep checking the RBI website as it updates the rules around the Liberalised Remittance Scheme (LRS) in its latest circulars.
- Annual Limit: You can remit up to USD 250,000 per financial year with no cap on the number of transactions. The limit applies to each person separately. A family of four, including two minors, could remit USD 1,000,000 in a single financial year if each person has their own source of funds.
- Eligible users: The scheme is open only to resident individuals. Minors can remit funds, but their parent or legal guardian must co-sign the Form A2 application.
- Ineligible users: Corporates, partnership firms, Hindu Undivided Families (HUFs), and charitable trusts cannot use the LRS. They have separate rules for overseas investments and expenses.
- Transaction Types: You can use LRS for current account transactions, spending money that does not create an asset, or capital account transactions, like buying assets abroad.
- Currency Flexibility: Remit money in any freely convertible foreign currency, such as Euros, British Pounds, or Japanese Yen.
- No Prior Approval: As long as your transaction is within USD 250,000, you do not need RBI’s approval. If you cross the threshold, you will need RBI’s permission. However, the rules are relaxed for medical treatments, paying fees, or emigration where the institution or country is demanding more money.
- Prohibited transactions: You can use LRS for foreign investments, but not for margin trading, buying lottery tickets, purchasing FCCBs on overseas secondary markets, and remittances to FATF non-cooperative jurisdictions or terrorism-flagged entities.
- Tax Collected at Source (TCS): TCS applies on LRS remittances under section 206C (1G) of the Income Tax Act. The rates depend on the purpose and the total amount you send. TCS is an advance tax payment that you can claim back during your ITR filing.
⚠️ COMMON MISCONCEPTION
The LRS limit is not a per-transaction cap; it is the maximum cumulative across all remittances in one financial year.
Who Can Remit Under the Liberalised Remittance Scheme in India?
Any person who qualifies as a resident individual under the Foreign Exchange Management Act (FEMA) and holds a valid PAN card is eligible to remit money under the Liberalised Remittance Scheme (LRS). For example, a software engineer living in Delhi can use LRS to send money to a brokerage account in the US to buy international stocks.
Resident minors are also eligible to participate in the LRS scheme. Because a minor cannot legally enter a contract alone, a parent or legal guardian must co-sign the required Form A2. This is common when parents set up overseas savings accounts for their children's future education.
LRS are for resident individuals only. The following entities are ineligible for the LRS:
- Companies and corporate bodies
- Partnership firms and Limited Liability Partnerships (LLPs)
- Hindu Undivided Families (HUFs)
- Charitable trusts and societies
- Non-Resident Indians (NRIs)
The LRS doesn’t cover NRIs. They follow NRE/NRO account repatriation rules, which allow them to move money from India.
What are the Benefits of Liberalised Remittance Scheme?
The benefits of the Liberalised Remittance Scheme include global portfolio diversification, high-quality education abroad, financial support for family members living overseas, global travel and emigration, business expansion, and donations to individuals and charities outside India.
Portfolio diversification: Invest in international equities, global mutual funds, bonds, and Exchange Traded Funds (ETFs) through LRS to build global assets and balance out domestic market volatility.
Education support: Pay for tuition fees, hostel expenses, books, and daily living costs for students at foreign universities. A parent can use LRS to fund the necessary Guaranteed Investment Certificate (GIC) for their children studying in Canada and pay the first year's tuition directly from their Indian bank account.
Medical Treatment: Pay for specialized surgeries, consultations, or hospital stays to take care of your family members overseas.
Real Estate: Buy residential or commercial property abroad to build physical assets in leading cities globally.
Family Maintenance: Send gifts or monthly maintenance funds to close relatives like siblings, children, or parents to take care of their day-to-day expenses.
Business Expansion: Invest in foreign start-ups, joint ventures, or set up your own overseas business entities.
Global travel and emigration: Cover international leisure and business travel costs and relocation expenses for employment or permanent settlement.
Donations and gifting: Donate to international charities or send monetary gifts outside India using the LRS scheme.
What are Permissible Transactions Under the Liberalised Remittance Scheme?
Permissible transactions under the LRS are divided into current account transactions and capital account transactions. Current account transactions include money spent on services or expenses that do not create an asset outside India. Capital account transactions are those that create assets or liabilities outside India, such as buying property or stocks.
Current Account Transactions:
- Private Visits: Expenses for leisure travel to any country except Nepal and Bhutan.
- Education: Paying for school or university fees and associated living costs.
- Medical Treatment: Hospital bills, doctor fees, and travel for medical purposes.
- Gifts and Donations: Sending monetary gifts to individuals or donations to registered charitable organizations abroad.
- Maintenance of Relatives: Financial support for family members, including spouses, parents, children, and siblings.
- Business trips: Overseas travel that involves conferences, training, or any type of professional services related to business
- Employment and Emigration: Costs associated with moving abroad for a job or permanent residency, such as visa fees and relocation expenses.
Capital Account Transactions:
- Foreign bank accounts: Opening and maintaining savings or current accounts with banks outside India.
- Investments: Purchasing shares, debt instruments, or units of mutual funds in foreign markets.
- Real estate: Buying residential or commercial real estate abroad.
- Loans: Extending interest-free rupee loans to close relatives who are NRIs
- Business ventures: Investing in the equity of an overseas joint venture or wholly-owned subsidiary, provided it complies with Overseas Direct Investment (ODI) rules.
- Own account transfers: Transferring money to one’s own bank account held overseas
What Are The Prohibited Transactions Under Liberalised Remittance Scheme?
Prohibited transactions under the Liberalised Remittance Scheme include purchasing lottery tickets, engaging in margin trading for foreign exchange, and sending money to countries identified as non-cooperative by the Financial Action Task Force (FATF).
These prohibitions prevent money laundering, speculative financial losses, and the funding of illegal activities.
Lotteries and sweepstakes: You cannot use LRS funds to buy lottery tickets, enter online sweepstakes, or purchase banned or proscribed magazines. The FEMA guidelines disallow any transaction that resembles gambling or betting.
Foreign exchange and margin trading: You cannot use LRS to trade in global forex markets or to send money to overseas brokers for margin calls. For example, you cannot remit funds from India to your trading account in the UK to meet a margin requirement for a stock or currency position.
Secondary Market FCCBs: LRS does not allow the purchase of foreign currency convertible bonds issued by Indian companies in overseas secondary markets.
FATF Jurisdictions: You cannot send money to countries or entities identified as non-cooperative or high-risk by the FATF are prohibited.
Terrorism-Flagged Entities: Sending funds to individuals or groups identified by the RBI as posing a terrorism risk is also prohibited.
Resident-to-Resident Gifting: You cannot gift foreign currency to another Indian resident to credit a foreign bank account. All LRS gifts must be sent to a non-resident beneficiary.
What are Taxation Rules under Liberalised Remittance Scheme?
The taxation rules under LRS are governed by Section 206C (1G) of the Income Tax Act. It mandates banks to collect Tax Collected at Source (TCS) at the time of remittance. The rate of TCS depends on the purpose of the transfer and the total amount remitted within the financial year. TCS is not a final tax; it is an advance tax credit that you can adjust with your total tax liability when filing your income tax return (ITR).
TCS Thresholds and Rates (Effective April 1, 2025):
- No TCS: You don’t have to pay TCS on LRS remittances until the cumulative total for the year crosses ₹10 lakh.
- Education and Medical (Above ₹10 Lakh): A 2% TCS rate applies to the amount exceeding ₹10 lakh. If the remittance is for education and funded by a loan from a financial institution, no TCS is applicable even if the amount exceeds Rs.10 lakh.
- All Other Purposes (Above ₹10 Lakh): For investments, gifts, and travel, a 20% TCS rate applies to the amount exceeding ₹10 lakh.
- Inoperative PAN: If your PAN is not linked with Aadhaar or is otherwise inoperative, the TCS rate can go as high as 5% for education or medical and remain 20% for other purposes.
Claiming Your TCS Credit:
- Collect the TCS Certificate: After you remit money, collect the TCS certificate from your bank
- Check Form 26AS: Ensure the TCS amount appears in your Form 26AS or Annual Information Statement (AIS).
- File your ITR: Report the TCS amount in the Taxes Paid section of your tax return.
- Receive a Refund: If your total tax liability for the year is ₹1 lakh but you paid ₹1.5 lakh in TCS, the Income Tax Department will refund the ₹50,000 difference to you.
Taxation on overseas investments is a separate matter. If you sell foreign stocks for a profit, you will pay Capital Gains Tax in India. Short-term gains are taxed at your slab rate, while long-term gains, for assets held over a certain period, are taxed at specific long-term rates.
What Documents Do You Need to Remit Under Liberalised Remittance Scheme?
To remit money under the LRS, you need the following documents: PAN card, a completed Form A2, valid KYC documents, and proof of the source of your funds. Depending on the reason for the transfer, you may also need to provide purpose-specific supporting documents to your bank.
Mandatory Core Documents:
- PAN Card: This is compulsory for every LRS transaction. It allows the RBI to track your USD 250,000 limit across all banks and ensures proper TCS deduction.
- Form A2: This is a FEMA declaration form where you state the amount you’re sending, the beneficiary's details, and the specific purpose code for the transfer.
- KYC Credentials: You must provide valid government-issued identity and address proof, such as an Indian passport, Aadhaar card, or voter ID.
- Source of Funds Proof: Banks ask for bank statements or income documents (like a salary slip or ITR) to verify that the money being sent was legally earned and taxed in India.
Purpose-Specific Documents:
Following is the list of purpose-specific documents banks might ask for:
- Education: An admission offer letter from the university, a student ID card, or a fee invoice.
- Medical Treatment: A recommendation letter from an Indian doctor or a cost estimate or prescription from a recognized hospital abroad.
- Travel or Emigration: A copy of your passport and a valid visa, or employment confirmation papers for the destination country.
- Maintenance of Relatives: A written declaration identifying your relationship with the beneficiary and confirming their overseas residential status.
How Does Skydo Help Receive International Payments in India?
While LRS helps you send money out of India, Skydo helps you receive money from your foreign clients. Skydo is authorised by the RBI to operate as a Payment Aggregator-Cross Border (PA-CB) and it follows FEMA inward remittance rules.
Earning foreign currency is a non-LRS transaction that does not impact your USD 250,000 outward limit. Skydo provides the infrastructure to collect these payments faster and with significantly lower fees than traditional banks.
Traditional banks charge high currency conversion markups (1–3%) and hidden SWIFT fees, causing freelancers and exporters to lose 5–8% of their hard-earned income. That’s $5000 -$8000 on a foreign payment of $100,000.
Skydo charges a transparent flat fee: $19 for payments under $2,000 and $29 for payments up to $10,000. For larger amounts, the fee is a flat 0.3%. There are no monthly subscription fees or hidden charges. You only pay when you receive an international payment.
Skydo simplifies global collections by providing:
- Free Virtual Foreign Accounts: You get local bank account details in USD, GBP, EUR, SGD, AUD, and CAD. Your clients pay you via local transfer methods, like ACH in the US, which is free and convenient for them.
- Auto-Generated FIRA: For every payment you receive, Skydo automatically provides a Foreign Inward Remittance Advice (FIRA). You must share an FIRA with Indian banks and tax authorities to prove the money came from a legitimate export or service.
- Compliance Automation: Skydo offers eBRC closure assistance. By linking your DGFT account, you can bulk-upload shipping bills and auto-map your remittances to generate eBRCs in one click.
- Predictable Settlements: Skydo settles payments into your Indian bank account within 24 hours. Track the entire journey of your payment digitally without having to call your relationship manager or chase SWIFT copies.
Cut down the complexity of inward remittance compliance and focus on growing your global business with Skydo.
What is the Liberalised Remittance Scheme?
LRS is an RBI framework under FEMA 1999 that allows Indian resident individuals to remit up to USD 250,000 per financial year (April–March) for permitted current and capital account purposes. This includes activities such as education, travel, medical treatment, and overseas investments.
Who is eligible for the LRS scheme?
How do I avoid 20% TCS on foreign remittance?
What is the difference between LRS and non-LRS transactions?
Is there a limit on the number of LRS transactions in a year?
Can I remit more than USD 250,000 under LRS?
Does TCS under LRS mean I pay extra tax permanently?
Do I need to use LRS if I am a freelancer receiving money from a foreign client?
Does each family member get a separate LRS limit?
