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The Liberalised Remittance Scheme (LRS), introduced by the RBI, simplifies sending money abroad for resident individuals in India
In this article, we’re going to explore the Liberalised Remittance Scheme (LRS) which was recently introduced by the Reserve Bank of India to make it easy for Indian nationals to send money abroad. We’ll understand what the policy entails and what the money sending limits are.
What is the Liberalised Remittance Scheme (LRS)?
The LRS allows resident individuals, including minors, to freely remit funds up to a specific limit for permissible purposes without prior approval from the RBI. This offers greater flexibility in managing overseas finances for residents living or studying abroad.
Under the current scheme, a resident individual can remit up to USD 250,000 per financial year for various permissible transactions. This is a cumulative limit, meaning the total amount remitted throughout the financial year cannot exceed USD 250,000.
LRS allows you to simplify the process of sending money abroad to your relatives, friends, or family members without having to get separate approvals from the RBI. With no cap on the amount of transactions, managing money is also made easier with this scheme.
Who can remit funds under this scheme?
These are the Indian citizens who can remit the specified amount of money abroad without prior approval:
- Every individual who is a resident of India can remit funds using the LRS scheme.
- Even a minor is eligible to remit funds using LRS. However, in this case, the minor must get a specific declaration form signed by their guardian in order for the transaction to go through.
- Family members can also file a consolidated remittance request for sending money abroad.
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Is the LRS available to companies or sole proprietorship firms?
It is worth noting that LRS is not available to firms, HUFs, companies, associations, or charitable trusts. In the case of a sole proprietorship firm, LRS is available since there is no separate entity involved in the transaction. Hence, the limit of USD 2,50,000 is applicable to both the firm and the proprietor in total. Thus, the proprietor cannot claim USD 2,50,000 twice under their own name and the firm’s name.
Important points to remember when using the LRS
Here are some things you should keep in mind when you’re using the LRS exemption to transfer up to $250,000 abroad:
- There are no restrictions on the frequency of remittances within the annual limit. Hence, as long as your total cumulative amount does not exceed $250,000 per financial year, the number of transactions is not an issue.
- There are a set of permissible purposes for which you may transfer funds abroad under LRS. This could include:
- Education expenses for children studying abroad
- Medical treatment costs for self or dependents abroad
- Maintenance of close relatives residing overseas
- Travel expenses
- Gifts and donations (up to a certain limit)
- Investment in overseas assets (subject to regulations)
- You’ll typically need to submit documents supporting the purpose of remittance while initiating the transfer through authorised dealers, which are usually commercial private or state-owned banks.
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Frequently Asked Questions
Yes, LRS permits investment in overseas real estate, but with limitations. You can remit funds for property purchase, but not for renovation or maintenance. There might be additional regulations depending on the specific country. We encourage you to consult a tax advisor for guidance in specific tax-related circumstances.
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Exceeding the LRS limit of USD 250,000 in a financial year is a violation of the Foreign Exchange Management Act (FEMA) regulations. The penalty structure depends on the nature of the violation. If it’s unintentional and a genuine mistake, you might be asked to explain the discrepancy and repatriate the excess amount. However, there could be potential penalties like warnings or fines imposed by the RBI.
No, the LRS limit is separate and distinct from other foreign remittance schemes offered by the RBI. For instance, there’s a separate scheme for carrying travel allowance (in cash or travellers cheques) when you travel overseas. The limits for these schemes cannot be combined.
Starting a business abroad typically requires a larger investment than the LRS limit and might involve setting up a separate legal entity abroad. In this case, you might need to explore alternative channels for such remittances, potentially requiring RBI approval under specific foreign exchange schemes for Foreign Direct Investment (FDI) or through authorised dealers with relevant documentation.
No, there are individual limits applicable. These are your options:
Joint ownership: Each spouse can use their LRS limit for their share of a jointly owned overseas property.
Gifting: One spouse can gift funds (up to the limit) to the other under LRS permissible categories, considering gift tax implications.
Consult a professional: We also encourage you to consult a tax professional to explore other, less-straightforward LRS-compliant remittance options.