Liberalised Remittance Scheme (LRS): Purpose, Benefits, Eligibilty and Latest RBI Guidelines

The Liberalised Remittance Scheme (LRS), governed under the Foreign Exchange Management Act (FEMA), 1999, is an RBI regulation that allows Indian residents to send up to USD 250,000 per financial year abroad. Eligible users include individuals and minors, while NRIs are excluded. It is required to support overseas education, medical treatment, investment and travel, offering financial freedom with global opportunities. Benefits include flexibility of fund usage, support for international expenses, and simplified compliance. The law also mandates a tax on remittance to India through Tax Collected at Source (TCS), which varies based on the amount and purpose. While NRIs cannot use LRS, they can receive funds under these limits. Adhering to RBI rules ensures smooth international transactions. 

Liberalised Remittance Scheme: Limit, Eligibility & Key Rules

The Liberalised Remittance Scheme (LRS), by the RBI, defines the outward remittance limit from India, eligibility and usage. It ensures residents follow clear rules for sending money abroad under the law. The table below will give the clear details:

Category	Details
Annual Limit	Up to USE 250,000, per financial year (equivalent to Indian Rupee)
Eligibiliy	Indian Residents (including minors) and NRIs are not eligible.
Purpose	Education, travel, medical treatment, investments, gifts and maintenance.
Prohibited Transaction	Margin trading, lottery, and banned investment, and certain speculative deals
Frequency	Multiple remittances are allowed within the total annual limit
Tax Collected at Source (TCS)	Applicable to outward remittances and the rate depends on the amount and purpose
Regulatory Authority	Reserve Bank of India (RBI), under the Foreign Exchange Management Act (FEMA), 1999
PAN Requirement	Mandatory for all remittances under LRS

What Is LRS?

The Liberalised Remittance Scheme (LRS) was launched by the Reserve Bank of India in 2004 to simplify outward money transfer. It permits resident individuals and even minors to remit up to USD 250,000 abroad annually for education, medical needs, gifts or investment. Governed under FEMA 1999, it ensures regulated overseas transactions. Many people also ask about FEMA limits for inward remittance, but there is no fixed cap on funds coming into India; however, the transfer must comply with FEMA rules.  

Liberalised Remittance Scheme Limit and Eligibility

The LRS limit allows an individual to remit or send up to USD 250,000 per financial year, outside India, for any permissible current or capital account transaction or a combination of both. The scheme has certain eligibility criteria, and the remitter must fulfil all the necessary requirements to avail of the scheme. These criteria include having a PAN card, maintaining a bank account in India, and being a resident Indian.

Who Is Eligible To Avail Of This Liberalised Remittance Scheme?

To avail of the Liberalised Remittance Scheme, a non-resident individual must meet the following eligibility criteria:

• Hold a valid Indian passport or a person of Indian origin (PIO) card
• Have maintained a bank account with an authorised dealer (AD) Category-I bank in India for a minimum of one year
• Not be a resident of Pakistan, Bangladesh, Nepal, Bhutan, Afghanistan, China, Iran, Iraq, the Maldives, or Sri Lanka
• Abide by the rules and regulations set forth by the RBI regarding the Liberalised Remittance Scheme

Factors to Consider with LRS

When using the LRS, it is essential to consider the following factors to make the most of the scheme:

• Purpose of remittance: Determine the purpose of remittance and ensure that it falls under the eligible categories as per the LRS guidelines.
• Exchange rates: Understand the exchange rates and currency conversion process to ensure that you receive the best value for your money.
• Documentation: Ensure that all necessary documentation is in order and meets the requirements set forth by the RBI.
• Limits and regulations: Familiarise yourself with the limits and regulations set forth by the RBI to avoid any legal consequences.
• Tax implications: Understand the tax laws in both the home country and India to avoid any legal consequences.

Understanding these factors can help non-residents make the most of the LRS and enjoy its benefits while avoiding any legal or financial risks.

Benefits of the Liberalised Remittance Scheme

• Diversification of Portfolio: One of the major benefits of the Liberalised Remittance Scheme is that it allows residents to diversify their investment portfolio. Indian residents can invest in foreign stocks, mutual funds, bonds, and other financial instruments, which can help them spread their risk across different asset classes and geographies.
• Access to Global Markets: Another benefit of the Liberalised Remittance Scheme is that it provides Indian residents with access to global markets. Investing in foreign stocks or mutual funds can provide Indian investors with exposure to global market trends and help them benefit from the growth of the global economy.
• Education and Medical Treatment: The Liberalised Remittance Scheme allows Indian residents to remit funds abroad for education and medical treatment. 
• Liberalised Remittance Scheme for Non-Residents and Gifts: The Liberalised Remittance Scheme is also available to non-resident Indians (NRIs) and Persons of Indian Origin (PIOs) for certain transactions. They can remit funds from their NRE/NRO/FCNR accounts held in India. Regulation dictates that gifts under LRS, up to the value of USD 250,000, can  be remitted by resident individuals, subject to certain conditions.

Advantages Of Using The Liberalised Remittance Scheme For Non-Residents

The Liberalised Remittance Scheme offers several advantages for non-residents:

• Allows for the remittance of funds for investment, education, medical treatment, travel, or gifts to family members
• Offers a convenient and streamlined process for transferring funds abroad
• Allows for the repatriation of funds to India without any restrictions
• Provides an opportunity for non-residents to diversify their investment portfolio

Tips on Using the Liberalised Remittance Scheme Effectively

The Liberalised Remittance Scheme is a useful scheme for individuals looking to remit money outside India. However, to make the most of this scheme, it is important to use it effectively. Here are some tips to help you maximise the benefits of the Liberalised Remittance Scheme.

The first step to using the Liberalised Remittance Scheme effectively is to understand the scheme and its provisions. You should be aware of the annual limit, eligible transactions, and the documents required to avail of the scheme.

1. Planning and Budgeting

Planning and budgeting your remittance is crucial to avoid exceeding the annual limit and to maximise the benefits of the Liberalised Remittance Scheme. Make sure you have a clear understanding of your financial needs and plan your remittance accordingly.

2. Choosing the Right Remittance Method

There are various methods of remitting money outside India, such as wire transfer, demand draft, or online remittance services. Choose the method that suits your needs and offers the best exchange rates and fees.

3. Keeping Records

It is important to maintain records of your remittance transactions, including the amount remitted, the purpose, and the date. This can help you keep track of your remittances and avoid exceeding the annual limit.

Risks Associated with the Liberalised Remittance Scheme

Although the Liberalised Remittance Scheme is a convenient way to remit money outside India, it is important to understand the risks associated with it. One of the biggest risks is the fluctuation of exchange rates, which can affect the value of the remitted amount. Another risk is the possibility of exceeding the annual limit, which can attract penalties and legal consequences.

Here are some risks to keep in mind when using the Liberalised Remittance Scheme–

1. Exchange Rate Fluctuations

One of the biggest risks associated with the Liberalised Remittance Scheme is the fluctuation of exchange rates. The value of the remitted amount can vary depending on the exchange rate at the time of remittance, which can affect the value of the funds received.

2. Exceeding the Annual Limit

Exceeding the Liberalised Remittance Scheme annual limit of USD 250,000 can lead to penalties, legal actions, or even blacklisting. It may also cause financial losses due to currency risk, making future foreign exchange transactions difficult. 

3. Tax Implications

Sending money abroad under the Liberalised Remittance Scheme may attract tax implications in both India and the receiving country. It's important to be aware of the tax laws and consult a tax expert if needed.

4. Non-Compliance with Government Regulations

The RBI has set certain rules and regulations for the Liberalised Remittance Scheme, and failure to comply with these can result in penalties or even legal action. Be sure to follow the rules and regulations to avoid any trouble.

5. Unauthorised Transactions

Be careful of fraudsters who may try to trick you into making unauthorised transactions under the guise of the Liberalised Remittance Scheme. Always double-check the details before making any transactions.

Tax on Remittance to India: Key Considerations

Tax on Remittance to India is an important aspect to understand those sending and receiving money. It involves rules, rates, and compliance under RBI and income tax regulations. Check the points below to know in a better way:

• Applicability of TCS: Tax collected at Source (TCS) applies to outward remittances under LRS, verifying by purpose like education, travel and investment. 
• Rate of Tax Deduction: The TCS rate depends on the transaction type and amount. It may increase if remittance exceeds the prescribed annual limits. 
• Purpose of Remittance: Different purposes, such as medical expenses, education or investment, attract different tax treatments, making correct classification very important.
• Claiming Refunds: An individual can claim a TCS refund while filing an income tax return if the remitted amount doesn’t create extra tax liability.
• Compliance with FEMA: All remittances must follow FEMA and RBI guidelines to avoid penalties. Non-compliance may trigger investigations, fines or restrictions.

RBI Guidelines about The Liberalised Remittance Scheme

The Reserve Bank of India issues guidelines for the Liberalised Remittance Scheme to help residents send money abroad safely within set limits and under proper legal and compliance rules.

Legal Framework and Definitions

• The Foreign Exchange Management Act, 1999 (FEMA) governs foreign exchange transactions in India and classifies them into capital and current account transactions.
• "Person resident in India" is defined by FEMA and includes individuals residing in India for over 182 days during the preceding financial year.

Liberalised Remittance Scheme (LRS)

• LRS allows resident individuals, including minors, to remit up to USD 2,50,000 per financial year for permissible current or capital account transactions.
• The scheme was initiated in 2004 with a limit of USD 25,000 and has since been revised.

Prohibited Transactions

• LRS prohibits remittances for specific activities such as purchasing lottery tickets, sweepstakes, trading in foreign exchange abroad, and more.
• Remittances to countries identified as "non-cooperative" by FATF and those linked to terrorism are also prohibited.

Purposes Under LRS

• LRS funds can be used for various purposes, including private visits, gifts, employment abroad, emigration, business travel, medical expenses, education, and other current account transactions.

Repatriation of Income

• Income earned from investments abroad under LRS can be retained and reinvested. The unutilized foreign exchange must be repatriated within 180 days.
• Additional repatriation requirements may apply under Overseas Investments Rules and Regulations.

Consolidation of Remittances

• Remittances under LRS can be consolidated among family members, provided they adhere to the scheme's terms and conditions.
• Capital account transactions require co-ownership or partnership among family members.

Verification by Authorized Dealers (ADs)

• ADs verify the nature of remittance declared by the remitter and its compliance with RBI instructions.
• However, the remitter bears ultimate responsibility for ensuring FEMA rule compliance.

PAN Requirement

• Having a Permanent Account Number (PAN) is mandatory for resident individuals for all LRS transactions made through Authorized Persons.

Frequency of Remittances

• While there's no limit on the frequency of remittances under LRS, the cumulative total for a financial year should not exceed USD 2,50,000.
• Once this limit is reached, no further remittances can be made in that financial year under LRS.

Requirements for Remitters

• Designating an Authorized Dealer branch for LRS transactions is necessary.
• Remitters should maintain an account with the bank for a minimum of one year and provide details about the source of funds and purpose of the remittance.

Taxation in the Liberalised Remittance Scheme

Taxation refers to the system by which governments collect money from individuals and businesses to fund public services and development. Under the LRS and Non-LRS scheme transactions, taxes like TCS or income tax may apply depending on the purpose and amount.

Who Is Considered A Non-Resident As Per The Indian Income Tax Act?

As per the Indian Income Tax Act, an individual is considered a non-resident if he/she satisfies any of the following conditions:

• Stays in India for less than 182 days in a financial year
• Has been in India for less than 60 days in a financial year and less than 365 days in the preceding four financial years
• Eligibility criteria for non-residents to avail of the Liberalised Remittance Scheme

Liberalised Remittance Scheme For Non-Residents: Tax Implications for LRS

Non-residents who use the LRS to remit funds abroad may be subject to tax implications. It is essential to understand the tax laws in both the home country and India to avoid any legal consequences. Non-residents may be subject to income tax, capital gains tax, or gift tax, depending on the purpose of remittance.

Understanding Exchange Rates in the Liberalised Remittance Scheme

When it comes to using the Liberalised Remittance Scheme (LRS) for remitting funds abroad, understanding the exchange rate and currency conversion process can make a big difference. Here are some witty insights to help you navigate this aspect of the LRS:

Don’t be deceived by the rate: Exchange rates can be tricky, and it’s easy to fall for the advertised “best rate.” However, keep in mind that these rates may come with hidden charges.

1. Keep an eye on the market: Exchange rates are dynamic and fluctuate regularly. To make the most of the LRS, stay up-to-date on market trends and currency values.
2. Timing is everything: The timing of your currency conversion can impact the exchange rate you receive. By monitoring the market, you can choose the most opportune time to convert your funds.
3. Consider hedging: Hedging strategies can help you manage currency risks and ensure that you get the best possible exchange rate.

Overall, understanding the exchange rate and currency conversion process is crucial for making the most of the LRS. Keep these tips in mind to ensure that you’re getting the best possible deal.

Liberalised Remittance Scheme for Minors and Students

The Liberalised Remittance Scheme also applies to minors and students, allowing parents or guardians to send money abroad for educational expenses, living costs, and other approved purposes as per RBI guidelines.

• Eligibility:
  • Minors can use LRS through guardians, while students are permitted to receive funds for overseas education and living costs.
• Annual Limit:
  • The maximum outward remittance limit is USD 250,000 per financial year, covering tuition fees, hostel expenses, and daily living. 
• Purpose:
  • Funds can be sent for study materials, tuition, accommodation, exam fees, and other education-related international expenses allowed by the RBI.
• PAN Requirement:
  • For minors and students, a valid PAN card is mandatory for both the guardian and the remitter for LRS transactions. 
• Tax implications:
  • TCS (Tax Collected at Source) is applicable on remittances, and refunds can be claimed while filing income tax returns later. 

How Can NoBroker Help?

The Liberalised Remittance Scheme offers several benefits to residents and non-residents alike. Key takeaways include understanding the annual limit, eligibility criteria, tax implications, and currency conversion process. However, exceeding the annual limit and not adhering to the regulations can result in significant risks. 

It is understandable to have some confusion regarding eligibility, lack of knowledge about the repatriation process, and difficulty in understanding the currency conversion process. As an NRI, you would need help navigating the process of managing your assets in India, particularly when it comes to real estate transactions and maintenance. To make the process more efficient and stress-free, NoBroker provides an array of NRI services that you can access.