What Is The Liberalised Remittance Scheme (LRS)? | Explained

The Liberalised Remittance Scheme (LRS) was introduced by the Reserve Bank of India (RBI) in 2004 to simplify foreign exchange transactions for resident individuals in India.

This scheme allows them to remit up to USD 250,000 per financial year (April to March) for permitted transactions, ensuring regulatory compliance while facilitating seamless international fund transfers.

What is the Liberalised Remittance Scheme (LRS)?

LRS is a foreign exchange policy under the Foreign Exchange Management Act (FEMA) of 1999 that enables resident individuals to send money abroad for specific purposes.

Before the introduction of LRS, strict restrictions governed outward remittances. With LRS, individuals can now remit funds for education, medical expenses, investments, travel, and more.

Updated Tax On Liberalised Remittance Scheme In 2025

The threshold limit for TCS on remittances under the Liberalised Remittance Scheme (LRS) has been increased from ₹7 lakh to ₹10 lakh.

No TCS will be levied on remittances for education purposes if the funds are sourced from a loan provided by a specified financial institution.

• The threshold for TCS on foreign remittances has been increased from INR 7,00,000 to INR 10,00,000, offering greater flexibility for travellers, students, and investors.
• If remittances exceed INR 10,00,000 for travel purposes, a 20% TCS will apply unless exemptions are available under specific conditions.
• Spending through international credit cards is exempt from LRS, meaning it won’t attract TCS, a significant relief for frequent travellers.
• Similar exemptions apply to medical remittances, reducing the financial burden on individuals seeking treatment abroad.
• Investors sending funds abroad for asset purchases benefit from a larger tax-free window before TCS occurs.

How Does LRS Work?

The Liberalised Remittance Scheme operates under specific guidelines to ensure smooth and transparent international transactions.

It is designed to provide flexibility while maintaining regulatory oversight. Understanding the eligibility criteria, transaction process, and reporting obligations is crucial for individuals looking to remit funds abroad.

• Eligibility: LRS applies only to resident individuals, including minors (with a guardian’s consent). It does not apply to corporations, partnership firms, or Hindu Undivided Families (HUFs).
• Transaction Process: Remittances under LRS must be made through a savings bank account. Payments can be made via demand drafts or by opening an account in a foreign bank.
• Bank Reporting: Banks must report all LRS transactions to the RBI, ensuring transparency and compliance.

 Old Tax Implications on LRS

LRS remittances are subject to taxation under the Indian Income Tax Act. The key tax-related aspects included:

• Tax Collected at Source (TCS):
  • In a financial year, a 5% TCS is levied on remittances exceeding INR 7,00,000.
  • If the remittance is for education expenses funded through a loan, the TCS rate was reduced to 0.5%.
  • The deducted TCS could be refunded while filing income tax returns using Form 26AS.
• Tax on Foreign Investments:
  • Investments held for over two years are considered long-term capital gains and are taxed at 20%.
  • Investments held for less than two years are taxed per the individual’s applicable income tax slab rates.

Benefits of LRS

The Liberalised Remittance Scheme provides numerous advantages to resident Indians, enabling them to access global opportunities easily.

Whether for investments, education, or medical needs, LRS offers financial flexibility while ensuring regulatory compliance. Below are some key benefits:

1. Investment Diversification:

• Enables Indian residents to invest in global markets, reducing dependency on domestic investments.
• Provides access to a broader range of financial instruments such as foreign stocks, mutual funds, and real estate.

2. Educational Support:

• Simplifies fund transfers for tuition fees, living expenses, and study materials for students studying abroad.

3. Business Expansion:

• Helps entrepreneurs invest in foreign businesses, start-ups, and joint ventures to tap into international markets.

4. Medical Treatment Abroad:

• Ensures seamless remittance for medical expenses incurred in foreign hospitals.

5. Charitable Giving and Gifting:

• Allows residents to support family members abroad or donate to foreign charities.

LRS and Non-Resident Indians (NRIs)

The LRS applies exclusively to resident Indians and does not extend to NRIs. However, NRIs can remit funds abroad from their:

• Non-Resident Ordinary (NRO) account
• Non-Resident External (NRE) account
• Foreign Currency Non-Resident (FCNR) account

NRIs must adhere to separate RBI and FEMA guidelines for remitting funds from these accounts.

Restrictions Under LRS

While LRS provides significant flexibility, there are specific prohibitions:

• Prohibited Transactions:
  • Remittances such as lottery tickets, gambling, trading in foreign exchange, and margin trading are not allowed.
  • Remittances to countries identified as non-cooperative by the Financial Action Task Force (FATF) are restricted.
• Business-Related Transactions:
  • Corporations, HUFs, and partnership firms are not eligible to use LRS for fund transfers.

The Liberalised Remittance Scheme has streamlined international remittances for resident Indians, making it easier to send money abroad for education, healthcare, investments, and other legitimate purposes.

However, individuals must stay informed about the tax implications and regulatory requirements to ensure smooth and compliant transactions.

Understanding LRS facilitates global financial mobility and empowers individuals to explore international opportunities while adhering to RBI guidelines.

FAQs 

1. What is the maximum remittance allowed under LRS?

Resident individuals can remit up to USD 250,000 per financial year under LRS for education, travel, investments, and other permitted transactions.

2. What are the latest tax implications on LRS remittances in 2025?

The TCS threshold has increased to ₹10 lakh, with no TCS on education loans and 20% TCS on travel remittances exceeding ₹10 lakh unless exempted.

3. Can NRIs use LRS to send money abroad?

No, LRS is only for resident Indians. Under separate regulations, NRIs must remit funds through NRO, NRE, or FCNR accounts.

4. What are the key benefits of LRS?

LRS easily enables global investments, overseas education payments, business expansion, medical remittances, and charitable donations.

5. What transactions are restricted under LRS?

LRS prohibits remittances for lotteries, gambling, speculative trading, and margin trading, as well as business transactions for corporations and HUFs.