The Liberalized Remittance Scheme (LRS) is a framework by the Reserve Bank of India (RBI) which allows resident individuals to remit up to USD 250,000 per financial year for permitted international transactions. Before LRS, India had very tight foreign exchange regulations that restricted individuals from freely sending money abroad.
As the economy globalized, there was a growing need to enable residents to invest internationally, pay for education abroad, travel freely and do global financial transactions. So the RBI introduced LRS to liberalize remittance policy while maintaining control.
LRS is available to resident individuals, including minors (through guardians). This means businesses, corporates, and NRIs cannot use LRS. There are many other rules and regulations with regards to the LRS, please read on to find out more.
India’s Liberalized Remittance Scheme (LRS) is the route for individuals to send money abroad—whether for education, investments or travel—without getting caught in the trap of red tape. Introduced by the Reserve Bank of India (RBI) in 2004, it replaced an outdated system where every outward remittance used to require direct RBI approval.
Now, under LRS, any Indian resident can remit up to $250,000 per financial year for specific purposes. But why does this system exist?
While LRS offers flexibility, the government has tightened tax rules. Tax Collected at Source (TCS) now applies to most outward remittances, especially for overseas investments and travel expenses above ₹7 lakh. The idea is to track high value remittances and prevent tax evasion.
Please note that the LRS is designed for individuals to send money abroad within RBI’s prescribed limits and guidelines. Understanding these limits and regulations is essential for compliance. Firstly, let’s start with:
LRS is only for resident individuals, including minors. Minors require a guardian to initiate transactions on their behalf. Businesses, trusts, and partnership firms can’t use LRS— it is for personal remittances only.
RBI allows remittances for capital and current account transactions, including:
But LRS does not cover certain high risk activities, like remittances to countries identified as non-cooperative by FATF or speculative trading in forex markets. Transactions outside RBI’s prescribed list are not allowed.
With the annual cap and strict reporting requirements, Indian residents got to plan their remittances under LRS carefully to be compliant with RBI rules.
Under the Liberalized Remittance Scheme, you can send money abroad for various purposes, as long as you comply with RBI guidelines. The scheme is meant to allow personal expenses, investments, and business-related transactions and ensure that the funds are used for genuine purposes.
While LRS gives you flexibility, some transactions are not allowed, including:
Since banks are responsible to enforce these regulations, you have to submit declarations and supporting documents before processing transactions under LRS.
Sending money abroad under the Liberalized Remittance Scheme (LRS) is a process, but fintech and banks have made it simpler. Here’s how you can remit funds under LRS:
While most LRS transactions happen through banks, fintechs (like Cashfree Payments/Razorpay) are a faster and cheaper alternative with lower fees. Choose the right provider and it can make a big difference in the time and cost of your transfer.
The Liberalized Remittance Scheme (LRS) is taxed under the Tax Collected at Source (TCS) framework which was updated in October 2023. If you remit funds abroad under LRS, the TCS rate applicable depends on the purpose and amount of remittance.
For education and medical expenses, TCS is 5% on amounts above ₹7 lakh in a financial year. But if you are availing an education loan, TCS is 0.5% above ₹7 lakh.
For all other remittances including investments, travel or property purchase, 20% TCS applies on the entire amount unless you submit necessary declarations for exemptions. But if foreign remittances are made through credit card, they may be exempt from LRS-based TCS subject to RBI guidelines.
Note that TCS is not an additional tax but can be set off against your total tax liability while filing your Income Tax Return (ITR). Also, LRS remittances need to be reported in the Annual Information Statement (AIS) which the Income Tax Department monitors for compliance.
The Liberalized Remittance Scheme (LRS) allows Indian residents to send money abroad for various purposes including investments, education, travel and medical expenses. But with changing regulations like revised TCS rates and stricter compliance requirements, LRS can get complex.
While LRS is applicable for personal remittances, for businesses looking for a simple and cost-effective way to manage international remittances, Karbon is a better option. Our platform simplifies cross border payments, ensures RBI compliance, competitive forex rates and a hassle-free process.
Exceeding the $250,000 limit is a violation of FEMA rules. Your bank will not accept transactions above this limit and intentional violation can attract a penalty of up to 3 times the amount, investigation by enforcement agencies, and even restrictions on future foreign transactions.
No, the $250,000 limit is per person not per bank account. All banks are required to report LRS transactions to RBI under your PAN, so using multiple banks doesn’t increase your limit. Trying to do so is violation of FEMA rules and may attract penalty.
You can claim TCS amount as credit when you file your Income Tax Return (ITR). TCS amount will be shown in Form 26AS and you can set it off against your total tax liability. If TCS amount is more than your tax liability, you can claim a refund for excess amount.
No, RBI has banned LRS for investment in cryptocurrency. Banks will reject any remittance request where the purpose is to invest in digital currency, tokens, or virtual currency. Such transactions are not allowed under current LRS framework.
When an NRI becomes a resident Indian, he becomes eligible to use LRS but his foreign assets acquired during NRI status will not be counted towards LRS limit. However, any new foreign investment or remittance he makes as a resident Indian will be counted towards his annual $250,000 LRS limit.
Yes, sending money to relatives abroad for maintenance or as gift is allowed under LRS. You need to declare purpose as “family maintenance” or “gift” when you fill Form A2 at your bank. This transaction will be subject to applicable TCS rates and will be counted towards your annual $250,000 limit.
No, political contributions to foreign entities or individuals are not allowed under LRS. LRS prohibits remittances for political activities abroad and banks will reject such transactions. This is part of India’s foreign exchange regulations to prevent external influence on political processes.
No, Hindu Undivided Families (HUFs) cannot use LRS. LRS is available only to resident individuals including minors (through guardians). HUFs being a separate entity type under Indian law are not eligible to remit funds under LRS and will have to use other channels for foreign remittances.
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