The Liberalized Remittance Scheme (LRS) is a framework introduced by the Reserve Bank of India (RBI) in 2004, allowing resident individuals to freely remit funds abroad for permissible purposes. LRS simplifies the process of foreign remittances while maintaining compliance with the Foreign Exchange Management Act (FEMA).
Key Features of LRS
Annual Limit:
Resident individuals can remit up to USD 250,000 per financial year (April-March).
For remittances exceeding this limit, prior approval from RBI is mandatory.
Eligibility:
Only resident individuals (Indian citizens or persons residing in India) are eligible.
Not applicable to corporate entities, partnerships, or HUFs (Hindu Undivided Families).
Permissible Currencies:
Remittances can be made in any freely convertible foreign currency.
Permissible Uses Under LRS
Personal Expenses:
Travel, medical treatment, or education abroad.
Investment and Asset Acquisition:
Purchase of property, stocks, bonds, or mutual funds overseas.
Establishing or contributing to Joint Ventures (JVs) or Wholly Owned Subsidiaries (WOS).
Gifts and Donations:
Sending gifts to foreign residents or making donations to charities abroad.
Emigration or Maintenance:
Funds for emigrating or maintaining close relatives living abroad.
Other Specific Uses:
Subscription to international journals, hosting fees for websites, or participating in online courses.
Prohibited Uses Under LRS
Speculative Transactions:
Trading in foreign exchange derivatives or margin trading.
Restricted Sectors:
Investment in businesses such as lotteries, gambling, or banned countries.
Prohibited Entities:
Transactions with entities in countries identified by the Financial Action Task Force (FATF) as non-compliant.
Process for Remittance Under LRS
Choose an Authorized Dealer Bank:
Approach an RBI-licensed bank or financial institution.
Submit Required Documents:
Form A2: Declaration of remittance purpose.
Supporting documents such as invoices, admission letters, or travel details (if applicable).
PAN card details for tracking cumulative remittances.
Make the Transfer:
Specify the currency and amount.
Pay applicable bank charges and tax collected at source (TCS).
Tax Implications Under LRS
Tax Collected at Source (TCS):
5% TCS is levied on remittances exceeding INR 7 lakh in a financial year.
For foreign tour packages, TCS is 5% on the total amount (no threshold).
Higher TCS (20%) applies for investments abroad if PAN is not furnished.
Claiming Refund:
TCS can be adjusted against income tax liability or claimed as a refund.
Benefits of LRS
Ease of Investment: Simplifies overseas investment for individuals.
Support for Global Activities: Facilitates education, healthcare, and personal growth.
Transparent Compliance: Ensures transactions are monitored and regulated.
Recent Changes to LRS
Tightened Norms: Enhanced monitoring of remittances to prevent misuse.
Online Reporting: Digital filing systems introduced to streamline processes.
High TCS Rates for Certain Cases: To deter unauthorized investments.
Challenges of LRS
Limited Annual Cap: Some individuals find the USD 250,000 limit restrictive.
Documentation Requirements: Incomplete paperwork may delay remittances.
Complex Tax Structure: Understanding TCS and refunds can be challenging.
Conclusion
The Liberalized Remittance Scheme is a vital tool for Indian residents to participate in global opportunities, be it education, investments, or personal needs. By staying informed about permissible uses, limits, and compliance requirements, individuals can make the most of this scheme while adhering to regulations.
