What is Liberalised Remittance Scheme (LRS)?

Funds can be reemitted abroad for various purposes under Liberalised Remittance Scheme (LRS). What is LRS? And what is the ceiling limit for remittances under LRS?

What is Liberalised Remittance Scheme (LRS)?

Under the Liberalised Remittance Scheme (LRS), all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both. 

The Scheme is not available to corporates, partnership firms, HUF, Trusts, etc.

What if LRS limit is exhausted?

The release of foreign exchange exceeding USD 2,50,000 requires prior permission from Reserve Bank of India (RBI).

What are permissible capital account transactions under LRS?

The permissible capital account transactions by an individual under LRS are –

1. Opening of foreign currency account abroad with a bank.
2. Acquisition of immovable property abroad, Overseas Direct Investment (ODI) and Overseas Portfolio Investment (OPI).
3. Extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives.

What are permissible current account transactions under LRS? 

The permissible current account transactions by an individual under LRS are –

1. Private visit – For private visits abroad, other than to Nepal and Bhutan, any resident individual can obtain foreign exchange up to USD 2,50,000, in any one financial year, irrespective of the number of visits undertaken during the year.
2. Gift / donation – up to USD 2,50,000 in one financial year as gift to a person residing outside India or as donation to an organization outside India.
3. Going abroad on employment – up to USD 2,50,000 per financial year.
4. Emigration – up to the amount prescribed by the country of emigration or USD 250,000.
5. Maintenance of close relatives abroad – up to USD 2,50,000 per financial year.
6. Business trip – up to USD 2,50,000 in a financial year irrespective of the number of visits undertaken during the year. Visits by an individuals in connection with attending of an international conference, seminar, specialised training, apprentice training, etc., are treated as business visits. However, if an employee is being deputed by an entity for any of the above and the expenses are borne by the entity, such expenses shall be allowed outside LRS.
7. Medical treatment abroad – up to USD 2,50,000 or its equivalent per financial year without insisting on any estimate from a hospital / doctor. For amount exceeding the limit, Authorised Dealer (AD) may release foreign exchange under general permission based on the estimate from the doctor in India or hospital / doctor abroad. A person who has fallen sick after proceeding abroad may also be released foreign exchange (without seeking prior approval of RBI) for medical treatment outside India. In addition to the above, an amount up to USD 250,000 per financial year is allowed to a person for accompanying as attendant to a patient going abroad for medical treatment / check-up.
8. Studies abroad – up to USD 2,50,000 or its equivalent for studies abroad without insisting on any estimate from the foreign University. However, AD Category I bank and AD Category II may allow remittances (without seeking prior approval of RBI) exceeding USD 2,50,000 based on the estimate received from the institution abroad.

What are other terms and conditions under LRS?

• There are no restrictions on the frequency of remittances under LRS. 
• The remittances can be made in any freely convertible foreign currency.
• Remittances under the Scheme can be used for purchasing objects of art subject to the provisions of other applicable laws such as the extant Foreign Trade Policy of the Government of India.
• The Scheme can be used for outward remittance in the form of a DD either in the resident individual’s own name or in the name of beneficiary with whom he intends putting through the permissible transactions at the time of private visit abroad, against self-declaration of the remitter.
• Individuals can also open, maintain and hold foreign currency accounts with a bank outside India for making remittances under the Scheme without prior approval of RBI. 
• Investor, who has remitted funds under LRS can retain, reinvest the income earned on the investments. The received / realized / unspent / unused foreign exchange, unless reinvested, shall be repatriated and surrendered to an authorised person within 180 days from the date of such receipt / realization / purchase / acquisition or date of return to India. However, a resident individual who has made overseas direct investment, shall have to comply with the provisions contained in overseas investment guidelines.

Which activities are not permitted under LRS?

• Banks should not extend any kind of credit facilities to resident individuals to facilitate capital account remittances under the Scheme.
• The Scheme is not available for remittances for any purpose specifically prohibited under Schedule I or Schedule II of Foreign Exchange Management (Current Account Transaction) Rules, 2000.
• The Scheme is not available for capital account remittances to countries identified by Financial Action Task Force (FATF) as non-co-operative countries and territories. 
• Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by RBI to the banks is also not permitted.
• Banks cannot open foreign currency accounts in India for residents under LRS. Offshore Banking Unit (OBU) in India cannot be treated on par with a branch of the bank outside India for the purpose of opening of foreign currency accounts by residents under the Scheme.

What are the instructions on lending by resident individual to Non-resident Indian (NRI) / Person of Indian Origin (PIO)?

Resident individual is permitted to lend to a Non-resident Indian (NRI) / Person of Indian Origin (PIO) close relative by way of crossed cheque / electronic transfer subject to the following conditions –

• Loan is free of interest and the minimum maturity of the loan is 1 year.
• Loan amount should be within the overall limit under LRS of USD 2,50,000 per financial year.
• Loan shall be utilized for borrower’s personal requirements or for his own business purposes in India.
• Loan shall not be utilized for any activities in which investment by persons resident outside India is prohibited, namely –
• Business of chit fund
• Nidhi Company
• Agricultural or plantation activities or in real estate business, or construction of farm houses
• Trading in Transferable Development Rights (TDRs)
• Loan amount should be credited to NRO account of NRI / PIO.
• Loan amount shall not be remitted outside India.
• Repayment of loan shall be made by way of inward remittances through normal banking channels or by debit to Non-resident Ordinary (NRO) / Non-resident External (NRE) / Foreign Currency Non-resident (FCNR) account of the borrower or out of the sale proceeds of the shares / securities / immovable property against which such loan was granted.

What are the instructions on gifts by resident individual to Non-resident Indian (NRI) / Person of Indian Origin (PIO)?

A resident individual can make a rupee gift to a NRI / PIO who is a relative of the resident individual by way of crossed cheque / electronic transfer. The amount should be credited to Non-Resident (Ordinary) Rupee Account (NRO) account of NRI / PIO. The gift amount would be within the overall limit of USD 250,000 per financial year under LRS. 

What are documentations and reporting requirements under LRS?

• Resident individual should furnish Form A2 for purchase of foreign exchange under LRS.
• AD may also prepare and keep on record dummy Form A2, in respect of remittances less than USD 25,000. 
• It is mandatory for the resident individual to provide his / her Permanent Account Number (PAN) to make remittance under the Scheme.
• The applicants should have maintained the bank account with the bank for at least 1 year prior to the remittances for capital account transactions. If the applicant is a new customer of the bank, AD should carry out due diligence on the opening, operation and maintenance of the account. AD should obtain bank statement for the previous year from the applicant to satisfy themselves regarding the source of funds. If such a bank statement is not available, copies of the latest Income Tax Assessment Order or Return filed by the applicant may be obtained.
• The remittances made under this Scheme will be reported in FETERS in the normal course. 

What are the guidelines on remittances to International Financial Services Centres (IFSCs) under LRS?

• The remittances under LRS to International Financial Services Centres (IFSCs) in India can be made for –

Extant guidelines	Revised guidelines
Making investments in IFSCs in securities except those issued by entities / companies resident in India (outside IFSC). Payment of fees for education to foreign universities or foreign institutions in IFSCs for pursuing courses (in Financial Management, FinTech, Science, Technology, Engineering and Mathematics) specified by the Central Government under the purpose ‘studies abroad’.	Availing financial services or financial products as per the International Financial Services Centres Authority Act, 2019 within IFSCs. All current or capital account transactions, in any other foreign jurisdiction (other than IFSCs) through a Foreign Currency Account (FCA) held in IFSCs.

• For the permissible purposes, resident individuals can open FCA in IFSCs.
• To align the LRS for IFSCs vis-à-vis other foreign jurisdictions, the condition of repatriating any funds lying idle in the FCA of resident individuals in IFSCs for LRS beyond 15 days from the date of its receipt was withdrawn and was aligned with the period applicable for such remittances to other foreign jurisdictions, i.e., 180 days.

References

Government of India. (2022, May 23). 'Gazette notification no. SO 2374(E)'. Retrieved from https://rbidocs.rbi.org.in/rdocs/content/pdfs/Gazette2374E23052022.pdf

Reserve Bank of India. (2016, January 01). 'Master Direction - Liberalised Remittance Scheme (LRS) (Updated as on August 24, 2022)'. Retrieved from https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10192

Reserve Bank of India. (2021, October 21). 'FAQ-Liberalised Remittance Scheme'. Retrieved from https://rbi.org.in/Scripts/FAQView.aspx?Id=115

Reserve Bank of India. (2021, February 16). 'Remittances to International Financial Services Centres (IFSCs) in India under the Liberalised Remittance Scheme (LRS)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12029&Mode=0

Reserve Bank of India. (2023, April 26). 'Remittances to International Financial Services Centres (IFSCs) under the Liberalised Remittance Scheme (LRS)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12494&Mode=0

Reserve Bank of India. (2023, June 22). 'Remittances to International Financial Services Centres (IFSCs) under the Liberalised Remittance Scheme (LRS)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12518&Mode=0

Reserve Bank of India. (2024, May 30). 'RBI Annual Report 2023-24 - V. Financial Markets and Foreign Exchange Management'. Retrieved from https://www.rbi.org.in/Scripts/AnnualReportPublications.aspx?Id=1405

Reserve Bank of India. (2024, July 10). 'Remittances to International Financial Services Centres (IFSCs) under the Liberalised Remittance Scheme (LRS)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12699&Mode=0

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