Liberalised Remittance Scheme (LRS): Budget Announcements and Their Key Takeaways

The Liberalised Remittance Scheme (LRS) was introduced by the Reserve Bank of India (RBI) in 2004. This scheme made it easier for Indians to send money abroad. Before LRS, sending money from India to other countries had many restrictions under India’s foreign exchange laws.

LRS removed many of these restrictions. It allowed Indians to more easily transfer funds overseas for purposes like education, medical treatment, tourism, and gifts. Under LRS, Indian residents can spend up to a certain limit abroad each year without too many questions from the bank. This scheme has benefitted many Indians living abroad who need financial support from family and friends back home.

The key aspect of LRS is that it made overseas money transfers much simpler for Indian residents compared to before 2004. There is now an annual limit per person on how much money can be sent abroad, which gets adjusted periodically by the RBI.

What is the Liberalised Remittance Scheme?

The Liberalized Remittance Scheme (LRS) allows resident Indian individuals to remit up to USD 250,000 abroad per financial year for approved transactions such as education, medical treatment, employment, travel, and investment purposes. The USD 250,000 ceiling is uniform across all permissible LRS transactions.

However, margin trading, gambling, real estate purchases, and certain other transactions are prohibited under LRS. Overall, Indian residents can remit up to USD 250,000 every financial year through LRS for most common overseas expenses, except those on a negative list that LRS remittances cannot fund.

Indian residents, except corporate entities, partnership firms, and Hindu Undivided Families (HUFs), can use the Liberalized Remittance Scheme (LRS). Even minors are eligible, provided their legal guardian completes and signs Form A2 on their behalf.

LRS specifically governs the outward remittance of funds from India for permissible transactions like education, travel, and investments. However, it does not regulate incoming foreign contributions. The Foreign Contribution (Regulation) Act 2010 separately governs the receipt and use of foreign funds by individuals and organizations within India.

Benefits of Liberalised Remittance Scheme in India

Below are some of the notable advantages of Liberalised Remittance Scheme (LRS) in India:

1. Investment Diversification: The LRS allows people to invest some of their money in overseas assets like stocks and mutual funds. This spreads their investments across different markets for better diversification.
2. Overseas Education: The LRS helps students who want to study abroad by making it easier for them to pay their tuition fees, hostel costs, and other expenses. This allows them to study at foreign colleges and universities more easily.
3. Medical Treatment Abroad: Patients can transfer funds from India for medical treatment that is not available locally. The LRS facilitates specialised treatment abroad when required.
4. International Travel: People can remit money under LRS for their international travel, covering flight tickets, hotel bookings and other trip expenses.
5. Global Business Expansion: The LRS enables Indian entrepreneurs to invest in foreign companies or start their own businesses overseas, helping them expand globally.
6. Gifts and Donations: The LRS allows people to send money abroad as gifts to family and friends or as donations to charities, simplifying transfers for personal reasons.

Who can Benefit From Liberalised Remittance Scheme?

The Liberalised Remittance Scheme (LRS), under the Foreign Exchange Management Act, is open to all resident individuals, including minors and students. To qualify, individuals must hold an Indian bank account, possess a valid PAN card, and have a passport.

Funds remitted under LRS can be used for various purposes, such as education, business, personal expenses, or other permitted activities. This scheme offers flexibility, enabling Indian residents to transfer money abroad within the specified limits for their diverse financial needs.

LRS Scheme for NRIs

The Liberalized Remittance Scheme (LRS) facilitates easier overseas financial transactions for resident Indians. However, it does not apply to Non-Resident Indians (NRIs) who do not maintain savings accounts in India. Per regulations, NRIs have NRO, NRE, and FCNR accounts to manage foreign remittances. NRIs can transfer up to $10,000 annually from NRO accounts. No limits apply for remittances from NRE and FCNR accounts.

Tax on Liberalised Remittance Scheme

Gains from overseas investments made under the Liberalized Remittance Scheme are taxable in India. Investments held over 2 years are considered long-term, attracting a 20% tax on profits. Short-term investments, held under 2 years, are taxed at the applicable income slab rate.

Additionally, a Tax Collected at Source (TCS) of 5% applies on LRS remittances above Rs. 7 lakhs in a financial year. However, this TCS can be claimed as a refund when filing income tax returns by providing Form 26AS.

Changes in TCS in the Budget and its Implications

The Union Budget 2025 introduced key amendments in Tax Collected at Source (TCS), primarily aimed at increasing exemption thresholds and simplifying compliance. One of the major changes is the increase in the TCS threshold for overseas remittances and tour packages from ₹7 lakh to ₹10 lakh. This move benefits individuals making high-value foreign transactions, reducing their tax liability on such remittances.

Additionally, the budget has removed the 0.5% TCS on education-related remittances financed through loans, making it more affordable for students seeking education abroad.

These revisions reduce the tax burden on individuals and businesses, ensuring that only high-value transactions attract TCS. By rationalizing rates and increasing thresholds, the government aims to boost financial flexibility while maintaining tax compliance, particularly for frequent international spenders and investors.

RBI Guidelines for Outward Remittance

The RBI has established certain guidelines for Indian residents to make outward remittances abroad from their domestic accounts. According to the regulations, remittances can be sent via demand drafts issued favouring the remitter or the beneficiary using authorized dealer bank branches. One can also open bank accounts overseas to park foreign currency funds.

Key requirements include that remitters furnish PAN card details, adhere to Anti-Money Laundering (AML) and Know Your Customer (KYC) norms mandated by RBI, and fill out the required Form A2 when initiating the foreign currency purchase transaction.

Additionally, banks cannot provide any form of credit facility for outward remittances made by resident individuals under the Liberalized Remittance Scheme.

Frequently Asked Questions – FAQs

1. What is the Liberalized Remittance Scheme (LRS)?

The LRS is an RBI scheme that enables resident Indians to easily remit funds abroad for approved purposes, such as education, medical treatment, travel, etc., up to a limit of $250,000 per financial year.

2. Who can avail of the LRS scheme?

The scheme is available to resident Indian individuals, including minors and students. They need to have an Indian bank account, PAN card, and valid passport.

3. What is the current LRS limit?

The current LRS limit is $250,000 per financial year per individual, but RBI guidelines may change it.

4. What transactions are allowed under LRS?

Transactions allowed are overseas education, medical treatment abroad, international travel, gifting money, etc. Real estate purchase is prohibited.

5. Is the LRS applicable for NRIs?

No, the LRS is only applicable to resident Indian citizens, not NRIs. NRIs have separate NRO, NRE, and FCNR accounts.

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