A Complete Guide on Liberalised Remittance Scheme (LRS)
- What Is LRS Scheme?
- History and How the LRS Scheme Works
- Permitted Transactions Under the LRS Scheme
- Exemptions and Restrictions in LRS Remittance
- Benefits Of The Liberalised Remittance Scheme
- Eligibility Criteria and Required Documents for LRS
- Tax Implications Under the Liberalised Remittance Scheme
- Conclusion
What Is LRS Scheme?
LRS full form is Liberalised Remittance Scheme, a foreign exchange policy allowing Indian residents to send (remit) funds abroad for various purposes. This initiative was started by the RBI (Reserve Bank of India) in 2004.
The sole objective of LRS was to simplify sending money outside India. This scheme is primarily applicable to the residents of India having valid pan card, with an outward remittance limit of USD 250,000 every financial year.
History and How the LRS Scheme Works
Historically, the LRS scheme resulted from the Tarapore Committee's recommendations in the late 1990s. The committee proposed easing regulations on foreign investment, full capital account convertibility, liberalisation in capital inflows, and more. Later, in 2004, the RBI considered converting the full capital account via the Liberalised Remittance Scheme (LRS). With this scheme, individuals could also send up to $250,000 per annum abroad for related investment or expenses.
LRS is regulated under the FEMA (Foreign Exchange Management Act of 1999), which sets international remittance standards for Indian residents. It allows them (including minors and students) to remit within a specific limit under the capital or current account. But, in the case of a minor, the guardian must sign the LRS Declaration Form. However, it does not entertain inward transfers (from abroad to India). Also, the same applies to corporates, firms, partnerships, or HUF (Hindu Undivided Family).
There are things to note before availing the LRS:
- Individuals must convert the currency from Indian Rupee (₹) to any foreign currency before transferring overseas.
- Investment done in mutual funds (MFs) and the proceeds received can be reinvested (as per the scheme).
- Any unutilised, realised, unspent, or unused amount (unless reinvested) must be reverted (repatriated) back to the original sender within 180 days.
- The remittance must occur within the prescribed transactions list.
Permitted Transactions Under the LRS Scheme
The following list of transactions and some purpose codes are approved and allowed under the LRS Scheme. It includes:
Sr no |
Purpose code |
Use |
|---|---|---|
1 |
S0001 |
Investment needs (equity, mutual funds, bonds, venture capital funds, promissory notes, etc.) |
2 |
S1107 |
Overseas education |
3 |
S1108 |
Medical treatment |
4 |
S0301 |
Travel |
5 |
S1302 |
Gifts and Donations |
6 |
S1104 |
Entertainment & Recreation services |
7 |
S1301 |
Maintenance of close relatives abroad |
8 |
S1307 |
Emigration |
9 |
S0005 |
Property or real estate purchase |
10 |
Multiple codes |
Other transaction (not covered under FEMA) |
Exemptions and Restrictions in LRS Remittance
Considering the LRS remittance scheme, certain exemptions and restrictions exist. It includes:
- Prohibited Activities (like purchasing lottery tickets, sweepstakes, or proscribed magazines)
- Margin trading (sending funds for margin calls overseas)
- Forex trading
- Secondary market Bonds (remittance for purchase of Foreign Currency Convertible Bonds (FCCBs) by Indian companies)
- High-risk destinations (remittance is prohibited in countries tagged as "non-cooperative" as per the Financial Action Task Force (FATF))
- Resident-to-Resident Gifting (no one resident can gift another resident in foreign currency)
- Sanctioned Entities (remittance to entities, individuals, and countries identified as "terrorists").
- Restricted transactions (activities under Schedule II of the Foreign Exchange Management (Current Account Transactions) Rules of 2000 are also banned.)
Benefits Of The Liberalised Remittance Scheme
The following are the benefits of availing the LRS scheme for remitting purposes. It includes:
Diversification of investment thus enables investing in Global markets
The LRS scheme enables a significant remittance abroad so that they can invest eventually. It includes investment via Outbound AIFs (Alternative Investment Funds), NSE Receipts, and the Global Access Platform, which can encourage investment in foreign stocks and real estate. It broadens the scope beyond the domestic market.
Medical treatment
With the help of this scheme, individuals can fulfil their medical duties. They can send money abroad for treatment or accompany the patient to perform the same.
Education purposes
If your child studies abroad, this scheme can be helpful to pay tuition fees or school expenses. It helps in managing expenses without much hassle. These funds can support the educational needs of other family members studying overseas.
Maintenance of relatives
If you have dependent relatives living abroad, you can utilise the LRS remittance to maintain their living expenses. However, it must be within the prescribed limit of $250,000.
Eligibility Criteria and Required Documents for LRS
While the LRS remittance enables fund transfer to foreign nations, certain eligibility criteria and documents are required to benefit from the same.
Resident Status
(resident Indians, inclusive of minors and adults)
PAN card and bank selection
Choose any major bank like HDFC, ICICI, SBI, or others to remit the funds. Make sure to carry a PAN card as well.
Annual limit
The maximum limit to remit funds is ₹250,000 per financial year. Also, follow the guidelines for AML (Anti-money Laundering) when sending funds.
Forms
Fill out Form A2, bank application, and complete the related KYC verification when purchasing foreign currency.
Documents required for the LRS scheme:
- Proof of Identity (Aadhar card, PAN card)
- Proof of Address (utility bills like electricity, phone, or water bills)
- Additional documents for various purposes (for example, admission letter from school or institution, medical records or prescriptions, proof of emigration, etc.)
- Bank-related (cancelled cheque and bank account details)
- Proof of Income (income certificate from a CA - Chartered Accountant)
Tax Implications Under the Liberalised Remittance Scheme
Under the RBI guidelines, a particular tax system called TCS – Tax Collected at Source is adopted by the LRS scheme. It includes:
Type of remittance |
TCS applicable (as of 2025) |
|---|---|
Education, financed by a loan from any financial institution |
Nil |
For Medical Treatment/Education (other than loan) |
Nil up to Rs. 10 lakhs (5% on above ₹10 lakhs) |
Travel (purchase of overseas package) |
5% up to Rs 10 Lakh |
Other purposes |
Nil up to Rs.10 lakhs |
Conclusion
LRS is not just a remittance scheme but a comprehensive solution for individuals living abroad. This scheme has simplified sending funds overseas for education, travel, and medical treatment. It allows significant amounts to be used for various purposes and avail tax benefits. However, looking at the guidelines and fund restrictions before remitting any is necessary.
