LRS scheme was introduced as a liberalization measure to facilitate resident individuals to remit funds abroad for all current account transaction or permissible capital account transactions or combination of both, up to USD 2,50,000 per financial year (April-March). The Scheme is not available to Non-residents, corporates, partnership firms, HUF, Trusts, etc.

Scheme available to minors also –The Scheme is available to all resident individuals including minors. In case of remitter being a minor, the Form A2 must be countersigned by the minor’s natural guardian.

Consolidation of remittance of family members – Remittances under the Scheme can be consolidated in respect of family members subject to individual family members complying with its terms and conditions. However, clubbing is not permitted by other family members for capital account transactions such as opening a bank account/investment/purchase of property, if they are not the co-owners/co-partners of the overseas bank account/investment/property. Further, a resident cannot gift to another resident, in foreign currency, for the credit of the latter’s foreign currency account held abroad under LRS.

Transactions not permissible under LRS –All other transactions which are otherwise not permissible under FEMA are not allowed under the Scheme.

The permissible capital account transactions by an individual under LRS are as follows.

opening of foreign currency account abroad with a bank,

purchase of immovable property abroad,

Overseas Direct Investment/Overseas Portfolio Investment outside India for bona fide business,

extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in Companies Act, 2013.   

Borrowed funds cannot be utilised for making remittances under LRS – Remittance under LRS should be out of remitter’s own funds and not borrowed funds. Further banks should not extend any kind of credit facilities to resident individuals to facilitate capital account remittances under the Scheme.

The LRS limit of USD 2,50,000 per Financial Year (FY) under the Scheme also includes/subsumes remittances for current account transactions permitted under rules and regulations of Foreign Exchange Management Act (viz. private visit; gift/donation; going abroad on employment; emigration; maintenance of close relatives abroad; business trip; medical treatment abroad; studies abroad) available to resident individuals. Release of foreign exchange exceeding USD 2,50,000 requires prior permission from the RBI.

Provisions in respect of each type of current account transactions are as follows.

In addition to the above, an amount up to USD 2,50,000 per financial year is allowed to a person for accompanying as attendant to a patient going abroad for medical treatment/check-up.

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 the Reserve Bank. The foreign currency accounts may be used for putting through all transactions connected with or arising from remittances eligible under this Scheme.

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 as available on FATF website www.fatf-gafi.org or as notified by the Reserve Bank i.e North Korea and Iran. Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks is also not permitted.

The individual will have to designate a branch of an AD through which all the remittances under the Scheme will be made. The resident individual seeking to make the remittance should furnish Form A2 for purchase of foreign exchange under LRS . 

It is mandatory for the resident individual to provide his/her Permanent Account Number (PAN) to make remittance under the Scheme.

Investor, who has remitted funds under LRS can retain, reinvest the income earned on the investments. The received/realised/unspent/unused foreign exchange, unless reinvested, shall be repatriated and surrendered to the bank/authorised dealer within a period of 180 days from the date of such receipt/ realisation/ purchase/ acquisition or date of return to India. However, a resident individual who has made overseas direct investment, within the LRS limit, shall have to comply with the terms and conditions prescribed by the overseas investment guidelines under FEMA.

Resident individual is permitted to lend to a Non-resident Indian (NRI)/Overseas Citizen of India (OCI) close relative [‘relative’ as defined in Section 2(77) of the Companies Act, 2013] by way of crossed cheque/electronic transfer subject to the following conditions,

(i)  the loan is free of interest and the minimum maturity of the loan is one year.

(ii)  the loan amount should be within the overall limit under the Liberalised Remittance Scheme of USD 2,50,000 per financial year available for a resident individual. It would be the responsibility of the resident individual to ensure that the amount of loan granted by him is within the LRS limit and all the remittances made by the resident individual during a given financial year including the loan together have not exceeded the limit prescribed under LRS

(iii)  the loan shall be utilized for meeting the borrower’s personal requirements or for his own business purposes in India.

(iv)  the loan shall not be utilized, either singly or in association with other person for any of the activities in which investment by persons resident outside India is prohibited, namely –

(v)  the loan amount should be credited to the NRO a/c of the NRI/OCI. Credit of such loan amount may be treated as an eligible credit to NRO a/c.

(vi)  the loan amount shall not be remitted outside India; and

(vii)  repayment of loan shall be made by way of inward remittances through normal banking channels or by debit to the 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 or securities or immovable property against which such loan was granted.

A resident individual can make a rupee gift to a NRI/OCI who is a relative of the resident individual [‘relative’ as defined in Section 2(77) of the Companies Act, 2013] by way of crossed cheque/electronic transfer. Relative of an Individual means father, mother, son, son’s wife, daughter, daughter’s husband, brother, and sister. The amount should be credited to the Non-Resident (Ordinary) Rupee Account (NRO) of the NRI/OCI and credit of such gift amount may be treated as an eligible credit to NRO Account.

The gift amount would be within the overall limit of USD 250,000 per FY as permitted under the LRS for a resident individual. It would be the responsibility of the resident donor to ensure that the gift amount is within the LRS limit, and all the remittances made by the donor during the financial year including the gift amount have not exceeded the limit prescribed under the LRS. Gift in foreign currency can be made to any person.

Resident individual can make ODI/OPI within the LRS limit of 250,000 USD in a financial year subject to compliance with the conditions provided under Overseas Direct Investment Regulations and Rules. Investment shall be made through single designated Authorised dealer bank by filing Form ODI within 30 days of remittance.

A resident individual can send remittances under the Liberalised Remittance Scheme (LRS) for purchasing immovable property outside India. In case members of a family pool their remittances to purchase a property, then the said property should be in the name of all the members who make the remittances.

For example, Mr.X’s family intends to purchase immovable property worth USD 1 million in UAE. Here, Mr.X’s family can jointly purchase property in the name of 4 family members. Each family member can remit funds of USD 25,000 to purchase immovable property worth USD 1 million.

Tax collected on source (TCS) is levied at the rate of 5% on all remittances above the threshold of Rs 7 lakh in a financial year. However, the TCS deducted can be claimed at the time of filing income tax return (ITR) under Form 26 AS. In non-PAN/ Aadhaar cases the rate applicable shall be 10%.

TCS will be applicable on the amount in excess of Rs. 7 lakh in a financial year and not on the total amount received from a particular buyer.

For example, if the total foreign exchange facility availed under LRS in a financial year is Rs 10 lakh, and you want to remit the amount abroad, a TCS at 5 per cent will be applicable on Rs 3 lakh. (Rs 10 lakh minus Rs 7 lakh) and tax collected will be Rs. 15,000.

In case of education-related foreign remittances made out of loans, a TCS of 0.5% will apply for an amount exceeding Rs. 7 lakhs. However, remitter should have taken a loan from a financial institution or bank. In case remittance is made out of own funds, even if for education purposes, tax shall be collected at 5% only.

With more geographical borders and an integrated global economy, the frequency of foreign transactions has grown tremendously. LRS facilitates such transactions in a seamless manner while also safeguarding the country's foreign exchange against instability. Residents and entrepreneurs alike should familiarise themselves with the nuances of LRS to have a     hassle-free remittance experience and optimise their foreign exchange dealings.

                                                                                                                                                                                              CA Dhanush D.Bolar