A liberalised remittance scheme, known as the LRS Scheme, was launched by the Reserve Bank of India in 2004. A major reason for introducing the LRS scheme was to regulate the flow of Indian rupees out of the country and to reduce fraud and extortion. During the past few decades, especially with the fall of the 20th Century, the number of Indians travelling and working worldwide has significantly increased, both among residents and non-residents. Earlier transferring money abroad was a complicated process, but with the LRS scheme taking over, it has become the most hassle-free task.
Therefore, the Liberalised Remittance Scheme is more important now than ever before. This article describes everything you need to know about remittances under the Liberalised Remittance Scheme. To get all the details, continue reading.
What is Liberalised Remittance Scheme (LRS Scheme)?
Liberalised Remittance Scheme (LRS Scheme) enables outward remittances of up to $2,50,000 in a financial year. This programme is open to any citizen who is a resident of India, such as parents wanting to transfer money to their kids living abroad. Authorised retailers such as banks (using only your PAN card to verify) can enable this transfer of money between residences and overseas dependents and any private money exchange individuals or agents are not allowed to enjoy the scheme. Additionally, the Liberalised Remittance Scheme For Non Residents can help them with their medical expenses and travel arrangements through foreign exchange services. This scheme is unavailable to partnership firms, HUFs and corporates.
What Is LRS Limit?
Funds are limited to $250,000 per fiscal year for outward remittances from India. Transactions with a threshold of $250,000 apply to capital as well as current accounts. Every individual, including minors, is entitled to this limit. In case a minor is a concerned party, a minor's natural guardian must countersign Form A2.
Who Can Avail of the LRS Scheme?
The Liberalised Remittance Scheme (LRS) is a system in which parents can send money to their children from home when they study abroad. Any remittance upto $2,50,000 can be done easily, but if the amount exceeds this limit, such a transfer requires the prior permission of the RBI.
Types of Transactions Permitted Under LRS Scheme
Remittances prohibited under the LRS scheme are as follows:
- According to the rules on current account transactions (2000), it prohibits direct remittances for any purpose explicitly prohibited under Schedule-I and Schedule II.
- Remittances from Indians to overseas exchanges or counterparties.
- Indian companies can issue foreign currency convertible bonds that can be sold on foreign secondary markets.
- A foreign exchange remittance.
- As per the Financial Action Task Force (FATF), only a few countries are deemed to be "non-cooperative and territories".
- According to RBI's directive to banks separately, no direct or indirect payments should be made to individuals or entities with an elevated risk of committing terrorism.
Types of Transactions Prohibitions Under LRS Scheme
It has been clarified that the LRS scheme will not cover the subsequent items under the latest RBI guidelines:
- Schedule-I restricts the remittance of amounts paid for lottery tickets, sweepstakes, prohibited magazines, etc.
- Under Schedule II of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, it is prohibited to remit items that are not permitted.
- Indian remittances to foreign counterparties to cover margin calls.
- The Indian company sending money to purchase a foreign currency convertible bond (FCCB) on the overseas secondary market.
- Transferring money overseas for foreign exchange.
- According to the Financial Action Task Force (FATF), several countries and territories are not cooperating in capital transfers. Country lists may change from time to time.
- According to RBI advice, it is advisable to avoid transferring funds to individuals or entities engaging in terrorist activity.
LRS and NRIs
To qualify for the Liberalised Remittance Scheme, you must live in the country and be an Indian resident. Even though NRIs can open bank accounts in India, remittance rules will differ.
There are several types of Indian bank accounts available to NRIs:
- NRE (Non-resident external)
- NRO (Non-Resident Ordinary)
- FCNR (B) (Foreign Currency Non-Resident Bank Account)
An NRI can deposit up to $10,00,000 in their NRO account each year through the RBI guidelines. There is no upper limit on NRE or FCNR (B) accounts, and NRE account and FCNR (B) account holders are restricted regarding inward remittances.
In India, NRI bank accounts are subject to specific terms and conditions laid down by the RBI. Check the latest guidelines before making remittances from such accounts.
What Things Should I Keep in Mind About the LRS Scheme?
You must remember a few things to make the most of the LRS scheme. Here is a list of those things:
1. LRS and currency
If you are planning to invest or spend money overseas via an international transaction, you need to convert the Indian Rupee to US Dollars before completing the transaction. Several rules govern the way these transactions are handled under the Liberalised Remittance Scheme.
2. Account transactions
You should contact your local foreign exchange bureau to find out whether you can use LRS for international trips and other purposes. LRS is usually available to Indian citizens along with forex facilities.
The LRS regulations allow investors who invest in mutual funds and shares in other countries to reinvest their money unless it involves direct international investments. Profits and interest achieved on foreign investments and deposits are not subject to repatriation.
4. Capital account transactions
Within the LRS, the following transactions are permitted:
- Opening, holding and maintaining banks with a foreign currency account. Foreign currency accounts with foreign banks are opened, held, and maintained
- Foreign real estate purchase
- Investment in various securities is possible such as overseas private equity funds, treasury bonds, stocks, mutual funds, etc.,
- According to Companies Act, lending money to non-resident Indian families
- As per the Overseas Direct Investment, you can create a Joint Venture (JV) or a Wholly Owned Subsidiary (WOS) outside of India to carry out any honest commercial activity.
1. Is LRS applicable to NRIs?
The LRS applies only to Indian residents, and there is a difference in the remittance rules for NRIs with accounts in India.
2. How much money can an Indian send abroad?
Neither sending nor receiving money is limited by law. There are often limits on the number of transactions a financial institution or money transfer provider can make per day. Depending on where you are located, this will vary.
3. Is the Tax Collected on Source (TCS) on the LRS refundable?
Using the new TCS rules, you can deduct taxes you've paid from your overall tax obligation. If you file your return by the due date, you can claim the refund or credit as an income tax refund or credit.
4. How can I send more than USD 250000 from India?
Depending on the RBI's regulations, you may need to obtain prior approval from the RBI before sending USD 250000 from India. However, during an emergency, you are allowed to send more than $2,50,000.
5. Is foreign remittance taxable in India?
On outward foreign remittances, tax cleared at source (TCS) has been effective since October 1, 2020. 5% of TCS will be charged for transfers over Rs. 7 lakh.
The tax rates will change after 1 July, 2023. Know more about tax rates here
6. Can I take a loan under LRS?
Loan amounts should not exceed USD 2,50,000 per financial year, the maximum limit available to residents under the LRS.
7. Is there any limit to the number of remittances under the LRS?
There have been several updates to the LRS limit. There is a $250,000 remittance limit at present. Although foreign exchange transactions can be made in any quantity, their value cannot exceed $250,000.
8. Should remittances be made only in US dollars?
Remittances are freely convertible into foreign currencies.
9. Is it mandatory for resident individuals to have a Permanent Account Number (PAN) for sending money abroad under the LRS?
There is a need for individual residents to provide their Permanent Account Number (PAN) to make payments under the scheme. It is possible to retain and invest funds in foreign countries.
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