Liberalised Remittance Scheme (LRS) — How Indians Send Money Abroad

The Liberalised Remittance Scheme (LRS) is the RBI framework that allows Indian residents to remit funds abroad — up to USD 2.5 lakh per individual per financial year — for permitted purposes. Introduced in 2004 with a USD 25,000 limit, LRS has been progressively expanded; the current USD 2.5 lakh limit allows substantial overseas spending and investment. Permitted purposes: travel, education, medical treatment, maintenance of relatives abroad, foreign investments (stocks, bonds, real estate), gifts to non-residents, and overseas property purchase (for personal use). Each financial year limit resets — unused amounts don't carry forward. Recent Budget changes have introduced TCS (Tax Collected at Source) at 5% on LRS remittances above ₹7 lakh for investment purposes, 20% on overseas tour packages, and different rates for education/medical. TCS is recoverable against final tax liability — it's a working capital impact, not a permanent cost. For most middle-class Indian households, LRS provides the legal pathway for: children's foreign education, family travel, international investment exposure, and supporting elderly relatives abroad. Freedomwise's Year Cashflow Planner doesn't currently model multi-currency cashflows, but understanding LRS is essential for global financial planning.

What is the USD 2.5 lakh annual limit?

The current LRS limit per individual per Indian financial year (April to March):

Aspect	Limit
Annual remittance	USD 2,50,000 (~₹2.1 crore at current rates)
Per individual	Yes (each adult Indian has own limit)
Per family of 4	USD 10 lakh aggregate possible
Carries forward	No (unused expires at FY-end)
Combinable with spouse for joint use	Yes (each spouse's individual limit)

For high-net-worth households planning major overseas spending (foreign property, large education funding): proper LRS planning across multiple family members and financial years is essential.

For most middle-class households, the USD 2.5 lakh limit is more than enough — most use LRS for occasional travel (USD 5,000-15,000), small investment exposure (USD 5,000-25,000/year), or specific needs.

What are the permitted purposes under LRS?

LRS allows remittances for several categories:

Category	Notes
Private visits	Including business travel
Gift / Donations	To non-residents or institutions abroad
Going abroad for employment	Initial remittance, settling-in expenses
Emigration	One-time emigration-related expenses
Maintenance of close relatives abroad	Children, parents, spouse
Travel for business	Conference, training
Travel for medical	Treatment abroad
Travel for studies	Living expenses (separate education limit also available)
Investments	Foreign stocks, bonds, real estate, mutual funds
Property purchase abroad	For personal use; not commercial speculation

Education and medical have separate larger limits (USD 1 million per academic year for education with specific documentation; USD 250,000 per case for medical with documentation).

How is TCS calculated on LRS remittances?

Recent budget changes have introduced TCS on LRS. Current structure (subject to ongoing changes):

Purpose	TCS rate	Threshold
Education (loan funded)	0.5%	Above ₹7 lakh
Education (self-funded)	5%	Above ₹7 lakh
Medical treatment	5%	Above ₹7 lakh
Foreign tour packages	20%	No threshold
Other purposes (investments, gifts)	5%	Above ₹7 lakh

Worked example: ₹25 lakh remittance for foreign investment in single FY:

• First ₹7 lakh: no TCS
• Remaining ₹18 lakh × 5% = ₹90,000 TCS withheld at remittance
• The ₹90,000 is credited to your PAN and recoverable against final tax liability via ITR filing

TCS is a working capital cost, not permanent. But ₹90,000 stuck for 6-12 months until tax refund processes is a real opportunity cost.

How do I make an LRS remittance?

The typical process:

1. Choose authorised dealer. Most major Indian banks (HDFC, ICICI, Axis, Kotak, SBI) are AD-1 (Authorised Dealer Category-1) for LRS.

2. Initiate transfer. Online through net banking or visit branch. Provide:

   • Beneficiary details (full name, address, bank account, SWIFT/BIC code)
   • Purpose code (from RBI's prescribed list)
   • Amount in INR or foreign currency
   • PAN

3. Complete Form A2. Declaration of purpose, source of funds, beneficiary details. Mandatory under FEMA.

4. Currency conversion. Bank converts INR to USD (or other foreign currency) at the prevailing rate plus spread (typically ₹1.5-3 per USD).

5. Wire transfer. Bank transfers funds via SWIFT to beneficiary account. Typical settlement: 1-3 business days.

6. TCS deduction. If applicable, bank withholds TCS at remittance and credits to your PAN.

7. Documentation. Bank provides FIRC (Foreign Inward Remittance Certificate) and remittance confirmation. Keep these for ITR filing.

What is the documentation needed for LRS?

For most LRS transactions:

• PAN (mandatory)
• Aadhaar (often required for KYC)
• Form A2 (declaration of purpose; bank provides format)
• Bank account verification (account from which funds remitted)
• Beneficiary details

For specific purposes, additional documents:

• Education: Admission letter, fee statement from foreign institution
• Medical: Doctor's recommendation, treatment estimate from foreign hospital
• Investments: Account statements from foreign broker/bank
• Property purchase: Sale agreement, title documents

Banks require these for compliance with RBI's documentation guidelines.

What restrictions apply to LRS?

LRS has specific prohibitions:

• No remittances for prohibited purposes: Margin trading, lottery, gambling, FX trading (speculation), purchase of FCCBs of Indian companies
• No remittances to countries notified as non-cooperative under specific UN/RBI lists
• No remittances to entities specified as terrorist organisations
• Property purchase only for personal use: Not for commercial real estate speculation
• Investment in shares of Indian companies listed abroad: Restricted to specific routes

Most ordinary LRS uses (travel, education, broad investment in foreign stocks, family maintenance) fall well within permitted categories.

How does LRS affect my Indian tax filing?

Income from LRS-remitted investments must be reported in your Indian ITR:

Item	ITR reporting requirement
Foreign assets at year-end	Schedule FA in ITR (mandatory if foreign assets exceed certain threshold)
Foreign income (dividends, interest)	Reported as "Income from Other Sources"
Foreign capital gains	Reported in capital gains schedule
Foreign tax paid	Form 67 to claim credit (DTAA)

Schedule FA in ITR-2 or ITR-3 captures foreign assets. Non-disclosure attracts significant penalties under FEMA and Income Tax Act.

Most Indian tax-payers with US investments via LRS file ITR-2 to handle the foreign income/asset disclosures correctly.

Use this on Freedomwise

• How to Invest in US Stocks from India — practical investment use of LRS
• International Mutual Funds India — alternative without LRS
• Tax on Foreign Stocks India — taxation framework
• Global Diversification India — broader strategy
• International pillar — complete international investing education