The Liberalised Remittance Scheme (LRS) is a facility introduced by the Reserve Bank of India (RBI) that allows resident individuals to remit a certain amount of money during a financial year for specific purposes. Designed to provide greater financial freedom to Indian citizens, LRS plays a critical role in foreign investments, overseas education, and travel.
Understanding the Liberalised Remittance Scheme
The liberalised remittance scheme was launched in 2004 to enable Indian residents to remit foreign exchange abroad freely, up to a prescribed limit. As of the current regulations, individuals can remit up to USD 250,000 per financial year (April to March) without seeking special approval from the RBI.
The scheme is applicable only to resident individuals, including minors, but not to corporates, partnership firms, or HUFs.
Permitted Uses Under LRS
Funds sent abroad under the LRS can be used for a wide range of personal and investment purposes, including:
-
Education: Tuition fees, living expenses, and other costs for studying abroad.
-
Travel: International leisure and business travel expenses.
-
Medical Treatment: Expenses for hospitalization and treatment outside India.
-
Investment: Buying shares, bonds, or real estate overseas.
-
Gifts and Donations: Sending money to friends, family, or charitable organizations abroad.
-
Maintenance of Close Relatives: For Indian residents supporting family members living overseas.
However, certain uses are restricted, such as margin trading, lottery payments, and investments in foreign currency convertible bonds issued by Indian companies abroad.
How LRS Works
-
KYC Compliance: Individuals must fulfill the Know Your Customer (KYC) requirements with their bank or authorised dealer (AD).
-
Form A2 Declaration: Before remitting funds, the sender must submit a declaration (Form A2) stating the purpose of remittance and confirming it is within the LRS limit.
-
PAN Requirement: Providing a valid PAN is mandatory for all LRS transactions.
-
TCS Deduction: A Tax Collected at Source (TCS) applies under certain LRS transactions. For example, 20% TCS is levied on foreign remittances for purposes like overseas tours exceeding ₹7 lakh annually (subject to exemptions and adjustments in tax filings).
Benefits of LRS
-
Freedom to Invest Abroad: Individuals can diversify their investments into international markets.
-
Convenient for Students: Seamless transfer of education-related funds.
-
Support for Global Lifestyle: Easier to manage overseas travel, health, and family needs.
Final Thoughts
The liberalised remittance scheme is a powerful financial tool that encourages global financial participation for Indian individuals. Whether you’re investing in foreign stocks, sending a child for overseas education, or planning an international vacation, LRS provides the legal and regulated framework to manage such expenses.
For personalized guidance on using LRS effectively, contact Appreciate Wealth — your trusted partner in global financial planning.
