By Manu Rao | Updated March 2026
What Is the Liberalised Remittance Scheme?
The Liberalised Remittance Scheme (LRS) is a framework by the Reserve Bank of India that allows resident Indians to send up to $250,000 per financial year (April to March) abroad without needing RBI approval. The scheme covers a wide range of purposes: overseas investment, education, medical treatment, gifts, donations, travel, and maintenance of relatives abroad.
Note a critical distinction: LRS is for Indian residents sending money out of India. It is not for NRIs or foreign nationals. NRIs sending money out of India use different mechanisms (NRE/NRO repatriation).
Legal Basis
- RBI A.P. (DIR Series) Circular No. 64 dated February 4, 2004 — Original introduction of LRS with a $25,000 limit
- FEMA Section 5 — Current account transactions framework under which LRS operates
- RBI Master Direction — Liberalised Remittance Scheme (FED Master Direction No. 7/2015-16) — Consolidated guidelines
- Finance Act 2023 (Section 206C(1G)) — Tax Collected at Source (TCS) on LRS remittances
The $250,000 limit has been revised multiple times since inception:
| Period | LRS Limit |
|---|---|
| February 2004 (launch) | $25,000 |
| 2007 | $200,000 |
| August 2013 (rupee crisis) | $75,000 |
| June 2014 | $125,000 |
| May 2015 onwards | $250,000 |
Who Can Use LRS?
LRS is available to all resident individuals, including minors (through their legal guardian). It is not available to:
- Corporates, partnership firms, trusts, or HUFs — only individuals
- NRIs and persons resident outside India under FEMA
The $250,000 limit is per individual per financial year. A family of four (all residents) can collectively remit up to $1 million in a financial year.
Permitted Purposes Under LRS
Capital Account (Investment) Purposes
- Opening a foreign bank account
- Purchasing property abroad
- Investing in shares, mutual funds, or debt instruments listed on a recognized stock exchange abroad
- Setting up a wholly-owned subsidiary or joint venture abroad
- Extending loans to NRI/PIO relatives
Current Account Purposes
- Private visits abroad (tourism)
- Gift or donation
- Going abroad for employment
- Emigration
- Maintenance of close relatives abroad
- Medical treatment abroad (up to the $250,000 limit; beyond this, hospitals can receive more with specific estimates)
- Education abroad (up to $250,000; beyond this, loans from AD banks can cover the remainder)
Not Permitted Under LRS
- Remittance for purchase of lottery tickets, sweepstakes, or proscribed magazines
- Trading on foreign exchanges (margin trading, forex speculation)
- Remittance for buying FCCBs (Foreign Currency Convertible Bonds) issued by Indian companies abroad
- Remittance for capital account transactions to countries identified as non-cooperative by FATF
- Remittance from India for setting up a company abroad for purposes roundtripped back as FDI into India
How LRS Connects to Foreign Business in India
LRS is primarily an outbound mechanism, but it intersects with FDI and foreign business setup in several ways:
Indian Resident Setting Up a Foreign Entity
An Indian entrepreneur can use LRS to invest up to $250,000 in a foreign company (wholly-owned subsidiary or JV). That foreign company can then invest into India as FDI. However, the RBI specifically prohibits using LRS for round-tripping — creating a foreign shell company solely to bring money back as "foreign" investment.
Indian Partner Remitting to a Foreign Partner
If an Indian business owner needs to send funds to a foreign partner (for joint ventures, shared expenses, or licensing fees), LRS can be used for amounts within the limit.
Indian Residents Investing in Foreign-Listed Indian Companies
Indian residents can use LRS to buy shares of Indian companies listed abroad (like companies listed on NYSE or NASDAQ). This is a distinct route from domestic stock market investment.
Tax Collected at Source (TCS) on LRS
Since October 1, 2023, LRS remittances attract Tax Collected at Source (TCS) under Section 206C(1G) of the Income Tax Act:
| Purpose | TCS Rate (up to Rs 7 lakh) | TCS Rate (above Rs 7 lakh) |
|---|---|---|
| Education (funded by loan from financial institution) | Nil | 0.5% |
| Education (funded by own sources) | Nil | 5% |
| Medical treatment | Nil | 5% |
| All other purposes (investment, travel, gifts) | Nil | 20% |
The Rs 7 lakh threshold applies per individual per financial year across all LRS remittances. TCS is not an additional tax — it is collected upfront and can be adjusted against your income tax liability when you file your return.
The 20% TCS rate for investment and travel purposes (above Rs 7 lakh) was introduced by the Finance Act 2023 and came into effect on October 1, 2023. It was originally proposed at 20% with no threshold, but after public outcry, the government added the Rs 7 lakh exemption.
Process for Making an LRS Remittance
- Visit your AD bank (most Indian banks with foreign exchange desks handle LRS)
- Fill Form A2 — Declaration-cum-Application form for purchase of foreign exchange under LRS. Declare the purpose, amount, and beneficiary details.
- Submit PAN — Mandatory for LRS transactions
- Bank verifies LRS limit — The bank checks your cumulative LRS usage for the financial year across all banks
- Pay TCS — The bank collects TCS at the applicable rate
- Bank processes the remittance — Funds are sent via SWIFT to the overseas beneficiary
Common Mistakes
- Confusing LRS with NRI repatriation. LRS is for Indian residents sending money abroad. NRIs repatriating from NRE/NRO accounts follow different FEMA provisions with different limits and no TCS.
- Exceeding the $250,000 annual limit. The limit is aggregate across all purposes and all AD banks. If you remit $200,000 for a property purchase and then try to remit $60,000 for travel, the second transaction will be rejected.
- Not accounting for TCS in investment planning. 20% TCS on a $200,000 investment remittance is $40,000 collected upfront. While it is adjustable against tax liability, it impacts cash flow. Plan accordingly.
- Using LRS for round-tripping. Sending $250,000 abroad to a company you control, then bringing it back as FDI into India, is explicitly prohibited. RBI and ED actively investigate such structures.
- Forgetting to report in ITR. LRS remittances must be reported in Schedule FA (Foreign Assets) of your income tax return. Income from foreign investments (dividends, capital gains) must also be reported. Non-reporting attracts penalties under the Black Money Act, 2015 — up to Rs 10 lakh.
Practical Example
Meera, an Indian software engineer in Bangalore, wants to invest $50,000 in US stocks through a US brokerage account. She uses LRS.
Meera visits her HDFC Bank branch with her PAN card. She fills Form A2, declaring the purpose as "overseas investment in equity." Since her cumulative LRS for the year is zero, the entire $50,000 is within the $250,000 limit.
The amount exceeds Rs 7 lakh, so TCS applies at 20% on the amount above Rs 7 lakh. HDFC Bank collects TCS of approximately Rs 6.8 lakh (20% of the amount above Rs 7 lakh). Meera can claim this as a credit when she files her ITR.
HDFC Bank remits $50,000 to Meera's US brokerage account via SWIFT. Meera must report the US brokerage account and any income earned in Schedule FA of her income tax return.
Key Takeaways
- LRS allows Indian residents to remit up to $250,000 per financial year abroad
- For residents only — NRIs use NRE/NRO repatriation mechanisms instead
- TCS at 20% applies above Rs 7 lakh for investment and travel purposes
- Round-tripping (sending money out via LRS and bringing it back as FDI) is prohibited
- Foreign assets and income must be reported in Schedule FA of the income tax return
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