The Liberalised Remittance Scheme (LRS) is the primary framework under FEMA that permits resident individuals to remit funds abroad for specified purposes. While LRS is liberal by design, limits, purpose restrictions, tax collection, and documentation make compliance critical.
1. Introduction
LRS allows a resident individual to remit funds outside India without prior RBI approval, subject to:
an annual monetary cap, and
permitted purposes.
Misuse or misclassification under LRS is a frequent source of FEMA and tax exposure.
LRS is liberal—but not limitless.
2. Who Is Eligible Under LRS
LRS applies to:
resident individuals only.
It does not apply to:
companies, LLPs, firms, trusts, or HUFs.
Each individual has a separate annual limit.
3. Annual Limit Under LRS
The current LRS limit is:
USD 250,000 per financial year per individual,
inclusive of:
all outward remittances, and
investments made during the year.
The limit is aggregate across all banks.
4. Permitted Uses Under LRS
LRS permits remittances for:
education and medical expenses abroad,
travel and living expenses,
gifts and donations,
maintenance of close relatives,
purchase of foreign securities, and
setting up or acquiring overseas entities (within conditions).
Purpose must be genuine and correctly declared.
5. Prohibited Uses Under LRS
LRS does not permit remittances for:
lottery, gambling, or betting,
margin trading or speculative activities,
purchase of foreign lottery tickets, and
any purpose notified as prohibited.
Prohibited remittances are not compoundable.
Under LRS, purpose matters more than amount.
6. Investment vs Expense — Key Distinction
Remittances under LRS can be:
current account (expenses), or
capital account (investments).
Capital remittances:
trigger additional FEMA conditions, and
may require post-remittance reporting.
7. Banking Process for LRS Remittances
The typical process involves:
Form A2 and declaration,
purpose code selection, and
KYC and limit verification by the bank.
Banks rely on customer declarations.
8. TCS on LRS Remittances
Certain LRS remittances attract:
Tax Collected at Source (TCS) under the Income-tax Act.
TCS applicability depends on:
purpose of remittance, and
threshold limits.
TCS is not a tax cost—it is adjustable.
9. Tracking Limits Across Banks
Individuals must:
track remittances across all banks, and
ensure cumulative limit is not breached.
Banks do not have a centralised tracker.
Under LRS, tracking responsibility lies with the remitter—not the bank.
10. Documentation and Record Keeping
Key documents include:
remittance advice,
purpose declaration,
bank confirmations, and
investment contracts (where applicable).
These are essential for audit and scrutiny.
11. LRS vs Other FEMA Routes
LRS:
applies only to individuals.
ODI/FDI routes:
apply to entities and structured investments.
Misuse of LRS for business expansion is a common error.
12. Common Mistakes Under LRS
Frequent errors include:
exceeding annual limits,
wrong purpose code selection,
treating investment remittances as expenses, and
ignoring tax/TCS implications.
These surface during tax assessments and FEMA reviews.
13. Practical Guidance for Individuals
Individuals should:
plan remittances annually,
segregate expense and investment remittances, and
maintain a personal LRS tracker.
Advance planning prevents violations.
14. Practical Guidance for Professionals
Professionals must:
review purpose and limits,
advise on TCS and reporting, and
ensure correct FEMA route is followed.
Written advice reduces future disputes.
15. CABTA Insight
“LRS is freedom with responsibility—limits, purpose, and tracking are non-negotiable.”