Liberalised Remittance Scheme (LRS)
Numerous approvals from the Reserve Bank of India (RBI) were required before 2004 for transferring money overseas. Further India maintained the debt and interest obligation by observing foreign exchange reserve; restricted outflow of money to stop devaluation and destabilization of money; and monitored the import in the country which required foreign exchange reserve for funding.
For liberalising personal outward remittances, the Committee on Procedures and Performance Audit on Public Services ('CPPAPS') recommended a scheme which was introduced by RBI. LRS simplified the overseas investment and expenses for Indian resident.
What is Liberalised Remittance Scheme (LRS)?
Liberalised Remittance Scheme enables Indian residents to send USD250,000 outside India per financial year starting from April to March. As per the measures under this scheme mentioned by RBI, either any permissible current or capital account transaction, or a combination of both can utilise these funds.
What is the LRS remittance limit?
An amount of USD 250,000 can be remitted per financial year by an Indian resident under LRS and would require prior permission from RBI for remittance of any amount higher than this amount.
International Credit Card Transactions under LRS
International credit card transactions in foreign exchange will now be included under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India (RBI). This means that any foreign remittances above $2.5 lakh or its foreign currency equivalent would require prior RBI approval.
The Foreign Exchange Management Act (FEMA) rules regarding this were amended by the Ministry of Finance on 16 May 2023. Under the new rules, which are applicable from 1 July 2023, forex payments through international credit cards will not only be subject to the annual limit of $2.5 lakh under the LRS, but it will also be subject to 20% Tax Collected at Source (TCS).
The only exception to the amended rule will be for payments made through a Resident Foreign Currency (RFC) bank accounts held in India.
Forex Transactions
Payments through international credit cards for the following transactions (which fall under Schedule III) will come under the ambit of LRS. Please note that forex payments of up to $2.5 lakh per annum for the following transactions do not require prior approval from the RBI. Any additional remittances of above $2.5 lakh will require approval:
1) Private visits to countries except Bhutan and Nepal
2) Gifts or donations
3) Going abroad for employment purposes
4) Emigration
5) Financial maintenance of close relatives who reside abroad
6) Business travels, attending specialised training or conferences
7) Medical treatments or check-ups abroad or expenses related to travel as an attendant to a patient traveling abroad for medical treatment/check-ups
8) Education-related expenses abroad
9) Current account transactions
Increase in Tax Collected at Source for International Credit Card Spends
A TCS of 20% will now have to be paid for forex transactions involving the following outside India, applicable from 1 October 2023:
- Bonds
- Stocks or shares
- Real estate
- Gifts to non-resident Indians
- Tour travel packages
Exceptions to Increase in TCS
The following forex transactions are exempt from the increased TCS and will continue to be subject to the current TCS rates:
- Educational purposes
- Medical treatments
Who will have to pay the increased TCS on forex transactions under LRS
Only taxpayers under the new tax regime will have to pay the increased TCS of 20% for forex transactions under the LRS. While those with an annual income of Rs.12 lakh will have to pay TCS of 20%, those with an annual income of Rs.15 lakh will have to pay TCS of 30%.
However, taxpayers can claim credit for the TCS paid against regular income. It can also be adjusted against advance tax and other payments.
FAQs on Liberalised Remittance Scheme
- Who is eligible to remit funds outside India under the LRS?
As mentioned by the Foreign Exchange Management Act (FEMA), LRS is only for Indian residents and not for partnership firms, trusts, Hindu Undivided Family (HUF), corporations, etc.
- What if I need to remit more than USD250,000?
Remittance of more than USD 250,00 is possible under certain conditions for medical treatment, overseas education, and emigration purposes. For other cases prior permission would be required from RBI for remitting more than prescribed amount.
- What are the permissible current account transactions under the LRS?
The permissible current account transactions under the LRS are overseas business trip; travelling abroad for employment; emigration; medical treatment; pursing higher education abroad; private visit other than Bhutan and Nepal; and visiting close relatives abroad.
- Which capital account transactions are permissible under LRS?
The capital account transactions permissible under LRS are buying foreign property; opening foreign currency account with a bank outside India; investment in mutual funds, securities, overseas shares, etc.; as defined under Companies Act, NRI (Non-Resident Indian) loans offered to NRIs who are relatives; and setting up joint ventures (JV) abroad or wholly owned subsidiaries (WOS).
- Can a minor send money under the LRS?
Yes, LRS is applicable to minors provided they are Indian resident and guardians need to sign on Form A2.
- Can I only send USD?
No, you can send in any convertible foreign currency and not just US dollars.
- Is there any restriction on the total number of remittances I can make in a financial year?
No, there is no restriction on the total number remittances that you can make in a financial year, other than the amount which is set to a specific limit.
- Can I consolidate LRS remittances with family members?
If each family member follows the LRS terms and conditions, then you can consolidate LRS remittances with them. The remittance cannot be group with family members for capital account transactions if they are not co-owners or co-partners of overseas bank account, investment or property.
- Do I need to have a PAN card to send money using the LRS?
Yes, a Permanent Account Number (PAN) is required for remitting funds for all transactions under LRS.
- If I am a sole proprietor, can I remit funds under the LRS?
Yes, being a sole proprietor you can remit funds under LRS, but the transfer made against the business account will be counted towards the set limit for personal account and vice versa as there is no legal distinction between the owner and individual.
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