When Mrs. Sharma wanted to send money to her daughter studying in the US, she got a rude shock when her Bank informed her that she had exhausted the limit for the year. What really is the limit and how can Resident Indians undertake international transactions? Let’s find out.
The Liberalised Remittance Scheme (LRS) introduced by the Reserve Bank of India (RBI) is a pivotal framework designed to facilitate resident individuals in India in remitting funds abroad.
The Genesis of Lrs
The LRS was introduced during February 2004, as part of a broader liberalization measure. The primary intent was to allow Indian residents to remit funds for permissible current and capital account transactions. Over the years, the scheme has seen several updates to accommodate changing economic conditions and to align with global financial practices. As of the latest update, individuals can remit up to USD 2,50,000 per financial year under this scheme. However, there’re a few points to consider:
Key Features of Lrs
1. Eligibility
The LRS is available to all resident individuals, including minors. However, it is not applicable to corporates, partnership firms, Hindu Undivided Families (HUF), and trusts. For minors, the remittance form must be countersigned by the minor's natural guardian.
2. Remittance Limit
The permissible limit under LRS has evolved over time, starting from USD 25,000 in 2004 and reaching the current limit of USD 250,000. This amount can be remitted for any permissible current or capital account transaction.
3. Permissible Transactions
Under the LRS, individuals can remit funds abroad for various purposes, including:
- Private visits abroad (except for Nepal and Bhutan).
- Gift or donation to a person or organization outside India.
- Employment or emigration-related remittances.
- Maintenance of relatives abroad.
- Business trips or international conferences.
- Medical treatment abroad.
- Pursuing studies abroad.
- Acquiring immovable property abroad, as per the rules laid down by the Foreign Exchange Management Act (FEMA).
It is important to note that individuals can consolidate their remittances with family members' transactions for specific purposes, but clubbing for capital account transactions is generally restricted. So for all those of you buying those dream sea facing villas or Burj Khalifa apartments in Dubai whose prices exceed USD 250,000 and the thought is to club remittances of all family members, wait. If you want to understand, how best to do this, please do not hesitate to call us .
Documentation and Compliance
Individuals making remittances under the LRS must designate a specific branch of an authorized dealer bank for conducting all transactions. It is mandatory to provide the Permanent Account Number (PAN) for any remittance under LRS. Additionally, applicants need to fill out Form A2, providing details of the transaction and confirming compliance with FEMA guidelines.
Restrictions
The LRS comes with several restrictions to prevent misuse:
- It cannot be used for purposes such as margin trading or remittances to countries identified by the Financial Action Task Force (FATF) as non-cooperative jurisdictions.
- Individuals cannot gift foreign exchange to another resident for the credit of their foreign currency account under LRS.
- The LRS does not allow remittances for activities like real estate trading, investments in overseas lottery businesses, or investments in prohibited sectors under FEMA.
Opening Foreign Currency Accounts
Individuals can open, maintain, and hold foreign currency accounts abroad under the LRS. These accounts can be used for remittances related to permissible transactions, offering greater flexibility to individuals engaging in global financial activities.
Facilitating Remittances to International Financial Services Centres (ifscs)
In 2024, the RBI has introduced provisions allowing remittances to IFSCs in India for availing financial services or products under the LRS framework.
Prohibition on Settling Domestic Transactions
Residents cannot use foreign currency accounts held abroad to settle any domestic transactions under LRS.
Taxation and Reporting Under Lrs
While the LRS provides a streamlined process for remittances, it also mandates strict adherence to tax laws. Authorized dealers are required to ensure that tax is collected at source (TCS) on remittances where applicable and report all transactions through the Foreign Exchange Transactions Electronic Reporting System (FETERS).
Looking Ahead
The Liberalised Remittance Scheme has empowered resident individuals to engage with the global economy more freely. Whether for education, investment, or business purposes, LRS provides a robust framework for regulated international financial transactions. However, individuals must stay informed of regulatory updates to ensure compliance with the evolving financial landscape.
