Liberalised Remittance Scheme (Detailed)
The Liberalised Remittance Scheme allows resident Indian individuals to remit up to USD 250,000 per financial year for permitted current and capital account transactions, including foreign investments, education, travel, and maintenance of relatives abroad, subject to a twenty percent TCS on most remittances above seven lakh rupees.
The Liberalised Remittance Scheme (LRS) was introduced by RBI in 2004 as part of India's gradual capital account liberalisation, initially with a limit of USD 25,000. The limit has been progressively raised, reaching USD 250,000 per financial year for resident individuals — including minors — by 2015, where it has remained. The scheme permits remittances for a defined set of current and capital account transactions without requiring RBI's prior approval.
Permitted purposes under LRS include private travel, education and medical treatment abroad, maintenance of close relatives living outside India, gifts and donations to non-residents, purchase of immovable property abroad, investment in foreign equities and debt instruments (including direct investments in overseas stocks through international brokerages), and opening foreign currency bank accounts abroad. Business travel and official purposes for employees are excluded as they fall under separate RBI provisions.
The Finance Act 2023 introduced a significant change through Tax Collected at Source provisions. Authorised dealer banks collecting LRS remittances must collect TCS from the remitter at twenty percent on the remitted amount above seven lakh rupees per financial year for most purposes (including foreign equity investments, foreign tour packages, and other capital account purposes). For remittances toward education funded by a loan from a financial institution, the TCS rate is a lower 0.5 percent; for education funded from own sources, it is five percent. Medical treatment remittances attract five percent TCS.
The TCS is not an additional tax — it is a credit against the remitter's total income tax liability for that financial year and is adjusted when filing the income tax return. However, it does create a near-term cash flow implication since twenty percent of the remittance is retained at source and credited back only after the ITR is filed and processed. This can be meaningful for investors remitting large amounts to fund overseas portfolios.
Per-individual limits mean that remittances for a family are calculated separately for each adult member. A family of four adults can collectively remit up to USD one million per financial year. Joint remittances or pooling of individual limits is not permitted under LRS; each remittance must be made individually by the person whose limit is being utilised.