Indians residing abroad for education or other purposes often need funding from their family and friends in India. However, before 2004, the act of fund transfer from India to other countries came with severe restrictions under the Foreign Exchange Management Act of 1999.
Thus, RBI (Reserve Bank of India) introduced the LRS to facilitate smooth foreign transactions. Scroll down for a detailed insight into this scheme.
The LRS full form is Liberalised Remittance Scheme. It is a foreign exchange policy initiative introduced by the Reserve Bank of India in 2004. It intended to simplify and streamline the process of remitting funds outside India.
This scheme helped Indians overcome international fund transfer restrictions as set by the FEMA (Foreign Exchange Management Act), 1999. Under LRS, resident individuals can freely remit funds up to a certain limit for various permissible transactions involving a current or capital account.
The LRS scheme applies to the residents of India, and thus, the remittance takes place through a savings account. Non-Residential Indians are not supposed to have any savings accounts in Indian banks. Thus, they cannot remit funds from India, but they are permitted to transfer funds from NRO, NRE, and FCNR accounts abroad as per the regulations and requisite documentation:
The Liberalised Remittance Scheme is available to the following individuals and circumstances:
Under the LRS, a resident individual can remit up to USD 250,000 per financial year for permissible transactions. The LRS limit for education, medical treatment, employment, emigration, travel, investment, etc., is the same as mentioned. However, you can not use the remittances for margin trading, buying lottery tickets, real estate, etc.
Profits gained from overseas investments made through LRS are taxable in India depending on the investment's holding period. Investments over two years are considered long-term capital gains and impose a tax of 20% on the total profit earned. Profits earned from investments below two years are taxed at normal income tax slab rates.
Under the LRS scheme, you are liable to pay a 5% TCS (Tax Collected at Source) for remittances exceeding the limit of Rs. 7,00,000. However, you can claim a refund for the deducted TCS while filing ITR (income tax return) using Form 26AS.
Outward remittance indicates the transfer of funds from an Indian account to a foreign account. As per the RBI guidelines, outward remittance can be paid through a demand draft issued in the individual or the beneficiary's name. You can also open a bank account outside India to maintain foreign accounts. Here are some of the steps to do the same:
Some of the notable benefits of LRS are as follows:
Since its introduction, the Liberalised Remittance Scheme has paved the way for international trade, foreign investment, and more. However, you need what the Liberalised Remittance Scheme stipulates, especially its eligibility criteria and documentation requirements for a hassle-free transaction.
The RBI introduced the LRS scheme or Liberalised Remittance Scheme to facilitate hassle-free foreign exchange. Under this scheme, an Indian resident can transfer funds of up to USD 250,000 in a financial year outside India.
Indian residents, apart from corporates, partnership firms, HUFs, etc., are eligible for LRS. Even minors are eligible for LRS, given that their guardian signs Form A2.
The current limit for Liberalised Remittance Scheme is USD 250,000 for a given financial year. You can remit a higher amount after taking prior permission from the Reserve Bank of India.
There are multiple benefits of the LRS scheme. It allows you to diversify your investment portfolio, buy foreign products, transfer money for educational and medical aid to family members residing abroad, etc.
Profits earned from investments with more than 24 months of holding periods are eligible for 20% taxation. You need to pay a 5% TCS for a transfer of Rs 7,00,000 and more,
Yes, you can claim the TCS deducted as refunds. All you need to do is fill out Form 26AS while filing ITR.
The Liberalised Remittance Scheme only covers the provisions of foreign remittance, i.e., sending money outside India. The Foreign Contribution (Regulation) Act, 2010, covers the provisions for accepting and utilising foreign income for individuals and companies in India.
The Reserve Bank of India introduced Liberalised Remittance Scheme in 2004. It streamlines the foreign exchange procedure.