Liberalised Remittance Scheme (LRS)

1. Under the Liberalised Remittance Scheme (LRS), the threshold limit for TCS on remittance has been increased to Rs.10 lakh from Rs.7 lakh.

1. For funds received from loan provided by specified financial institution, will not incur any TCS on remittance.

LRS scheme for NRIs

The details about the applicability of LRS for NRIs (Non-Resident Indians) are mentioned below:

1. Applies to residents of India, with remittances made through a savings account.

1. Non-Resident Indians (NRIs) cannot have savings accounts in Indian banks and cannot remit funds from India.

1. NRIs are allowed to transfer funds from NRO (Non-Resident Ordinary), NRE (Non-Resident External), and FCNR (Foreign Currency Non-Resident) accounts abroad, subject to regulations and documentation.

1. Transfer up to USD 10,000 from an NRO account.

1. No limits on payments from NRE or FCNR accounts.

1. Simplifies financial transactions abroad for Indian citizens.

1. Funds can be used for debt repayment, education, and other personal needs.

1. Allows overseas investments, helping to diversify your investment portfolio.

Benefits of Liberalised Remittance Scheme in India

The benefits of LRS in India mentioned below:

1. Investment diversification: Investing in foreign assets such as stocks, bonds, mutual funds, and real estate.

1. Overseas Education: Covering education-related expenses such as tuition fees, living costs, and books for studying abroad.

1. Medical Treatment Abroad: Paying for medical expenses incurred outside India, especially for specialized treatments.

1. Travel: Funding travel-related costs, including airfare, accommodation, and other expenses for personal or business trips.

1. Business Investments: Investing in foreign businesses, start-ups, or joint ventures to expand business operations globally.

1. Gifts and Donations: Transferring funds as gifts to family members or making donations to charitable organizations abroad.

Eligibility for LRS

As per the Foreign Exchange Management Act (FEMA), LRS is applicable for Indian residents and not applicable for corporations, partnership firms, Hindu Undivided Family (HUF), trusts, etc.

What are the Permissible Account Transactions Under the LRS?

The permissible Current Account transactions by an individual under LRS are mentioned below:

1. Private visit (other than Nepal and Bhutan)

1. Pursuing studies abroad

1. Gift or donation (including rupee gift) to a Non-Resident Indian (NRI) or Person of Indian Origin (PIO), who is a close relative

1. Emigration

1. Overseas business trip

1. Medical treatment abroad

1. Going outside India for employment

1. Maintenance of close relatives abroad

The permissible Capital Account transactions by an individual under LRS are given below:

1. Open a foreign currency account with an overseas bank.

1. Purchase property overseas.

1. Overseas Investments.

1. Invest in and hold shares of listed and unlisted overseas companies or debt instruments.

1. Acquire qualification shares of an overseas company to hold the position of a ‘Director’.

1. Receive shares of a foreign company as compensation for professional services or Director’s remuneration.

1. Invest in units of mutual funds, venture capital funds, unrated debt securities, and promissory notes.

1. Establishing Overseas Subsidiaries and Joint Ventures: Set up Wholly Owned Subsidiaries and Joint Ventures outside India for legitimate business purposes (effective from 5 August 2013) under the terms of Notification No. FEMA. 263/ RB-2013 dated March 5, 2013.

1. Extending Loans to NRIs: Provide loans, including in Indian Rupees, to NRIs who are relatives as defined under the Companies Act, 2013.

Liberalised Remittance Scheme limit

As per the financial regulation, the individuals must follow the annual remittance limit under the LRS, and the details are mentioned below:

1. LRS Remittance Limit: Residents can remit up to USD 250,000 per financial year for permissible transactions.

1. Permissible Uses: The limit applies to expenses related to education, employment, emigration, medical treatment, travel, and investment.

What is not Permitted Under the LRS?

The restricted usage under LRS is mentioned below:

1. Margin trading, lottery, purchase of real estate, or other prohibited activities.

1. Purchase of Foreign Currency Convertible Bonds (FCCBs) issued by Indian companies in the overseas secondary market.

1. Trading in foreign exchange abroad.

1. Transactions with individuals or entities flagged by the RBI for posing a terrorism-related risk.

1. Capital Account remittances to countries identified by the Financial Action Task Force (FATF) as "Non-Cooperative Countries and Territories".

Liberalised Remittance Scheme Availability

The LRS s available to the following individuals and uses:

1. Available to resident individuals, including minors and students under the Foreign Exchange Management Act (FEMA).

1. Eligible individuals must have:

1. An Indian bank account

1. A valid Permanent Account Number (PAN)

1. A passport

1. Permitted Use of Remitted Funds: Funds can be used for education, business, personal expenses, and other purposes.

Tax on Liberalised Remittance Scheme 

Profits from LRS-based overseas investments are taxable based on the holding period. Here are more details about the tax applied on LRS:

1. Long-term capital gains (holding period more than two years) are taxed at 20%.

1. Short-term capital gains (holding period less than two years) are taxed at regular income tax slab rates.

1. Tax Collected at Source (TCS) on LRS:

1. A 5% TCS applies to remittances exceeding Rs.7 lakh under LRS.

1. The deducted TCS can be claimed as a refund when filing an Income Tax Return (ITR) using Form 26AS.

RBI guidelines for Outward Remittance

The Outward Remittance is the process of transfer of funds from an Indian account to a foreign account. It can be done through a demand draft issued in the name of the individual or beneficiary. Overseas fund can be maintained by opening a foreign bank account and here are the steps for outward remittance:

1. Select an authorised dealer bank branch for payments.

1. Carry a valid PAN card.

1. Follow Anti-Money Laundering (AML) and Know Your Customer (KYC) guidelines.

1. Complete Form A2 to purchase foreign currency.

Note: Banks cannot offer credit facilities to residents under LRS.

Liberated Remittance Scheme offers a seamless, convenient and flexible way of remitting funds abroad for various purposes.