The Ultimate Guide to Liberalised Remittance Scheme (LRS): Rules, TCS, Compliance, and IFSC Updates (2025)

The world is shrinking, and for many Indians, the need to send money abroad is becoming increasingly common. Whether it’s funding a child’s overseas education, investing in global markets, purchasing property internationally, covering medical expenses, or supporting family members living outside India, outward remittance is a frequent requirement. The primary mechanism governing these personal international fund transfers is the Liberalised Remittance Scheme (LRS), allowing resident individuals to remit up to USD $250,000 per financial year.

However, navigating the LRS remittance landscape can feel complex. Recent changes, particularly concerning Tax Collected at Source (TCS on LRS remittance) introduced via Budget 2025 (effective April 1, 2025), coupled with compliance requirements like Form 15CA/CB, and the emergence of new opportunities via International Financial Services Centres (LRS IFSC) like GIFT City, often lead to confusion. Many resident Indians grapple with understanding the exact rules, applicable taxes, necessary documentation, and the overall process.

This ultimate guide aims to demystify India LRS. We will provide a comprehensive, clear, and up-to-date explanation of everything resident Indians need to know about the Liberalised Remittance Scheme for 2025 and beyond. We’ll cover the LRS basics, eligibility criteria, the LRS limit, permitted and prohibited transactions, the latest TCS on LRS rules effective April 1, 2025, crucial compliance steps involving Form 15CA and Form 15CB, the exciting LRS GIFT City developments, the remittance process itself, and answers to frequently asked questions. Our goal is to equip you with the knowledge needed to manage your outward remittance smoothly and ensure full compliance with RBI guidelines LRS and tax regulations.

What is the Liberalised Remittance Scheme (LRS)?

The Liberalised Remittance Scheme, commonly known as LRS, is a framework established by the Reserve Bank of India (RBI) under the provisions of the Foreign Exchange Management Act (FEMA), 1999. Its core purpose is to simplify and facilitate the process for resident individuals in India to remit funds outside the country for a wide range of permissible current account and capital account transactions. In essence, LRS allows resident individuals to freely send up to a specific limit – currently USD $250,000 – per financial year without seeking prior approval from the RBI for each transaction, provided the purpose is permitted under the scheme.

Historically, sending money abroad from India involved more stringent controls. The LRS was introduced on February 4, 2004, initially with a limit of USD $25,000, representing a significant liberalization measure. The limit has been revised over the years, reflecting changes in India’s foreign exchange position and economic outlook, reaching the current $250,000 mark. This scheme effectively balances the need for capital controls with providing flexibility for residents to meet their global financial requirements and investment goals.

It’s crucial to understand who qualifies under LRS. The scheme is available only to ‘Resident Individuals’ as defined under FEMA. This typically means a person residing in India for more than 182 days during the preceding financial year, but the specific definition under FEMA should be consulted for precise criteria. The financial year (FY) considered for the LRS limit runs from April 1st to March 31st. Understanding this definition and the LRS full form – Liberalised Remittance Scheme – is the first step towards utilizing this facility correctly. The governing body & law remain the RBI under FEMA LRS regulations.

LRS Eligibility and Limits

Understanding who can use the Liberalised Remittance Scheme (LRS) and the exact LRS limit is fundamental for compliance.

Who is Eligible for LRS?

• Resident Individuals: As defined under FEMA, 1999, only individuals residing in India are eligible for the LRS eligibility. This includes Indian citizens living in India.
• Minors: Minors are also eligible to remit funds under LRS. However, the LRS declaration form (Form A2) must be countersigned by the minor’s natural guardian. The remittance is made on behalf of the minor.

Who is NOT Eligible for LRS?

The LRS facility is strictly for individuals. The following entities cannot avail of the scheme:

• Corporates
• Partnership Firms
• Hindu Undivided Families (HUFs)
• Trusts (except for specific cases which may require RBI approval)
• Non-Resident Indians (NRIs)

The USD $250,000 Annual Limit

The cornerstone of the LRS is its annual limit:

• Amount: Each eligible Resident Individual can remit up to USD $250,000 (or its equivalent in any freely convertible foreign currency) per financial year (April 1st to March 31st). This is the LRS limit per financial year india.
• Scope: This limit is an aggregate ceiling that covers all remittances made by the individual under LRS during the financial year, encompassing both current account transactions (like travel, education, gifts) and capital account transactions (like overseas investments, property purchase) combined.
• Currency: While the limit is specified in USD, the actual remittance can be made in any freely convertible foreign currency. The equivalent amount in USD is calculated based on the exchange rate prevailing at the time of the transaction. Exchange rate implications are important, as fluctuations can affect how much foreign currency can be sent within the USD limit.
• Frequency: There is no restriction on the number of remittances made during the financial year, provided the total amount remitted does not exceed the USD $250,000 ceiling.

Can the LRS Limit be Exceeded?

As a general rule, the USD $250,000 limit cannot be exceeded by an individual in a financial year. However, FEMA regulations may contain provisions for specific situations, such as emigration, expenses related to medical treatment abroad, or studies abroad, where remittances exceeding the LRS limit might be permitted, potentially subject to specific RBI approval processes or documentation requirements. It’s crucial to consult the latest RBI guidelines or an Authorised Dealer (AD) bank for such cases.

Family Remittances & Consolidation

The rules regarding LRS family remittance consolidation rules differ based on the type of transaction:

• Current Account Transactions: The scheme allows family members (typically defined based on income tax definitions, e.g., spouse, dependent children) to consolidate their LRS limits for permissible current account transactions (like travel, education, medical). For example, if two family members are travelling together, they might be able to utilize their combined limits for the trip expenses.
• Capital Account Transactions: “Clubbing” or consolidating limits for capital account transactions (e.g., buying property, making investments) is generally NOT permitted. Family members can remit funds up to their individual $250,000 limits for such purposes, but they cannot combine their limits unless they are co-owners or co-partners in the specific overseas asset or investment being acquired. For instance, a husband and wife could potentially remit $500,000 combined to purchase a property abroad if they are joint owners of that property.

Permitted vs. Prohibited Transactions under LRS

The Liberalised Remittance Scheme (LRS) allows resident individuals to send money abroad for a variety of purposes, categorized into current and capital account transactions. However, there are also specific transactions that are explicitly forbidden. Understanding these distinctions is crucial for compliance.

Permitted Current Account Transactions

These transactions relate to day-to-day expenses, travel, and personal needs. Common examples include:

• Private visits to any country (except Nepal and Bhutan, which have separate regulations).
• Gift or donation to individuals or organisations abroad (including gifts to NRI/PIO relatives).
• Going abroad for employment.
• Emigration from India.
• Maintenance of close relatives abroad.
• Travel for business, attending conferences, or specialized training.
• Expenses in connection with medical treatment abroad.
• Expenses in connection with studies abroad (including tuition fees, living expenses).
• Purchasing objects of art (subject to other applicable regulations like foreign trade policy).
• Any other current account transaction not explicitly prohibited.

Permitted Capital Account Transactions

These transactions typically involve acquiring assets or making investments overseas. Key permitted capital account transactions under LRS include:

• Opening a foreign currency account (FCA) abroad with a bank.
• Purchase of immovable property abroad.
• Making overseas investments, including:
  • Acquisition and holding of shares (listed or unlisted) of overseas companies.
  • Investment in debt instruments.
  • Investment in units of overseas Mutual Funds, Venture Capital Funds (VCFs), or Exchange Traded Funds (ETFs).
  • Investment in unrated debt securities, promissory notes.
  • Acquisition of qualification shares for holding a Director’s post in an overseas company.
  • Acquisition of ESOPs (Employee Stock Option Plans).
• Setting up Wholly Owned Subsidiaries (WOS) or Joint Ventures (JV) abroad for bonafide business purposes, subject to specific RBI regulations on Overseas Direct Investment (ODI).
• Extending loans in INR to NRI/PIO relatives (as defined under the Companies Act).

Prohibited Transactions

The LRS prohibited transactions list explicitly forbids remittances for certain activities:

• Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery tickets, banned magazines, football pools, sweepstakes) or Schedule-II (items requiring prior government approval) of Current Account Transaction Rules.
• Remittances made directly or indirectly to countries identified by the Financial Action Task Force (FATF) as “non-cooperative countries and territories,” from time to time.
• Remittance for margin trading or margin calls to overseas exchanges/counterparties.
• Remittances for purchase of Foreign Currency Convertible Bonds (FCCBs) issued by Indian companies in the secondary market abroad.
• Remittance for trading in foreign exchange abroad (speculative forex trading).
• Remittances towards capital account transactions not explicitly permitted under LRS.
• Remittance, directly or indirectly, to individuals and entities identified as posing a significant risk of committing acts of terrorism, as advised separately by the RBI to the banks.
• Gifts between two residents in foreign currency for crediting the foreign currency account of the recipient resident held abroad under LRS.
• Investment in Cryptocurrency: Remittances under LRS for the purpose of investing in cryptocurrencies or virtual currencies are prohibited. Banks are instructed to reject such requests.

The LRS Remittance Process & Documentation

Executing an outward remittance under the Liberalised Remittance Scheme (LRS) involves specific procedures and documentation, primarily facilitated through Authorised Dealer (AD) Banks.

Key Steps & Requirements:

1. Role of Authorised Dealer (AD) Banks: LRS remittances must be routed through an AD Bank (most commercial banks in India are ADs). Individuals need to approach their bank to initiate the transaction. Some banks like HDFC, ICICI, and SBI offer online portals (e.g., HDFC’s RemitNow, ICICI’s Money2World) alongside branch-based services for LRS remittances.
2. Designated Branch (Optional but Recommended): While not strictly mandatory by regulation to designate one branch, banks often encourage or require individuals to route all their LRS transactions through a single branch or their primary bank for better monitoring of the LRS limit.
3. PAN Card: Furnishing your Permanent Account Number (PAN) is mandatory for all LRS transactions. PAN is crucial for tracking remittances against the $250k limit and for TCS on LRS compliance.
4. Form A2: The remitter must fill out and submit Form A2 to the AD Bank for every LRS remittance. This form serves as an application and declaration for purchasing foreign exchange under LRS. It requires details such as:
   • Remitter’s personal information (Name, Address, PAN).
   • Beneficiary details (Name, Address, Bank Account).
   • Amount and currency of remittance.
   • Purpose of the remittance.
5. Declaration: Within Form A2 (or sometimes as a separate declaration), the remitter must declare that:
   • The funds belong to the remitter.
   • The total amount of foreign exchange purchased from or remitted through all sources in India during the financial year (including the current transaction) is within the overall LRS limit of USD $250,000.
   • The remittance is for a permissible purpose under LRS and not for any prohibited transaction.
   • The remittance is not designed for circumventing regulations or for money laundering.
6. Purpose Codes: AD Banks are required to report LRS transactions to the RBI using specific LRS purpose codes. Accurately stating the purpose in Form A2 is essential for correct reporting and determining the applicable TCS LRS rate.
7. Supporting Documents: Depending on the purpose of remittance, the AD Bank may ask for supporting documents required for LRS remittance. Examples include:
   • Studies Abroad: University offer letter, student visa, fee estimate.
   • Medical Treatment Abroad: Estimate from the overseas hospital/doctor.
   • Purchase of Property Abroad: Agreement of sale/purchase.
   • Overseas Investment: Brokerage account details, investment offer document.
   • Gift/Donation: Details of the recipient.
8. Bank Due Diligence: AD Banks are obligated to exercise due diligence. This involves verifying the identity of the remitter (KYC compliance), ensuring the purpose is permissible, checking the declaration, collecting necessary documents, and monitoring the LRS limit usage.

Tax Collected at Source (TCS) on LRS - Updated for Budget 2025 (Effective April 1, 2025)

One of the most significant aspects impacting LRS remittance users is Tax Collected at Source (TCS). The rules for TCS on LRS have undergone changes, most recently via Budget 2025, with new regulations taking effect from April 1, 2025. Understanding these is critical for anyone planning to send money abroad under India LRS.

What is TCS and Why is it Applied to LRS?

• Concept: Tax Collected at Source (TCS) is an income tax collected by the seller (in this case, the Authorised Dealer (AD) Bank facilitating the remittance) from the buyer/remitter at the point of transaction.
• Rationale: Applying TCS LRS is a measure by the Indian government primarily aimed at tracking large outward remittance transactions and widening the tax net. It helps ensure that individuals remitting substantial amounts overseas are within the tax compliance framework.
• Governing Law: The collection of TCS on LRS is governed by Section 206C(1G) of the Income Tax Act, 1961. This section has been amended multiple times, including by the Finance Acts of 2020, 2023, and significantly by Budget 2025 for rules effective April 1, 2025.

TCS Rules Effective April 1, 2025

The Budget 2025 introduced key changes to TCS LRS rules, primarily raising the threshold limit for most transactions. Here’s a breakdown of the rules effective TCS LRS April 1 2025:

• The INR 10 Lakh Threshold: For most LRS remittances (excluding overseas tour packages), TCS will now apply only on the amount exceeding an aggregate threshold of INR 10 Lakh per person (based on PAN) per financial year. This threshold is significantly higher than the previous INR 7 Lakh limit. If total LRS remittances in an FY are INR 10 Lakh or less, no TCS generally applies (except for tour packages). If remittances exceed INR 10 Lakh, TCS applies only on the amount above INR 10 Lakh.

• TCS Rates (Effective April 1, 2025): The applicable TCS rate LRS 2025 depends on the purpose of the remittance and whether the INR 10 Lakh threshold is crossed. Here’s the breakdown:

  • Purpose: For Education, if funded by a loan from a Financial Institution (as defined in Section 80E).

    • TCS Rate: NIL
    • Threshold Application: The threshold is increased to INR 10 Lakh, but the rate becomes NIL regardless of the amount exceeding it.

  • Purpose: For Education (NOT funded by loan as above) OR Medical Treatment.

    • TCS Rate: 5%
    • Threshold Application: TCS applies only on the aggregate amount exceeding INR 10 Lakh in the financial year.

  • Purpose: Purchase of Overseas Tour Package.

    • TCS Rate: 5% (up to INR 10 Lakh) AND 20% (on the amount above INR 10 Lakh).
    • Threshold Application: This category is treated differently. 5% TCS applies on the aggregate amount from the first rupee up to INR 10 Lakh, and 20% applies on the aggregate amount that exceeds INR 10 Lakh within the financial year.

  • Purpose: Any other LRS Purpose (e.g., Investment, Gift, Property Purchase, Maintenance of Relatives).

    • TCS Rate: 20%
    • Threshold Application: TCS applies only on the aggregate amount exceeding INR 10 Lakh in the financial year.

• Important Notes:

  • The INR 10 Lakh threshold is consolidated across all LRS remittances made by an individual (per PAN) through any AD Bank during the financial year.
  • These rates assume the remitter’s PAN is operative.

Impact of Inoperative PAN

If an individual’s PAN (Permanent Account Number) is inoperative (typically due to not being linked with Aadhaar by the stipulated deadline), higher TCS rates will apply as per Section 206CCA of the Income Tax Act. While Budget 2025 proposed removing Section 206CCA (higher rates for non-filers), the rules regarding inoperative PAN leading to higher rates generally remain applicable under Section 206CC. The specific higher rate is usually double the normal rate or a flat higher rate (e.g., 20%) as per prevailing tax rules, whichever is higher. It’s critical to ensure your PAN is operative to avoid punitive TCS LRS rates.

TCS Calculation Examples

Let’s illustrate the TCS calculation LRS investment and other scenarios (effective Apr 1, 2025):

• Scenario 1 (Education Loan): Remits INR 15 Lakh for education, funded entirely by a loan under Sec 80E. TCS = NIL.
• Scenario 2 (Other Education): Remits INR 15 Lakh for education (self-funded). TCS = 5% on (INR 15L - INR 10L) = 5% on INR 5 Lakh = INR 25,000.
• Scenario 3 (Investment): Remits INR 18 Lakh for overseas investment (first LRS remittance in FY). TCS = 20% on (INR 18L - INR 10L) = 20% on INR 8 Lakh = INR 1,60,000.
• Scenario 4 (Multiple Remittances): Remits INR 6 Lakh for travel (Jan), then INR 8 Lakh for investment (Mar). Total = INR 14 Lakh. TCS on the second remittance = 20% on (INR 14L - INR 10L) = 20% on INR 4 Lakh = INR 80,000.
• Scenario 5 (Tour Package): Remits INR 12 Lakh for an overseas tour package. TCS = (5% on INR 10L) + (20% on INR 2L) = INR 50,000 + INR 40,000 = INR 90,000.

How TCS is Collected and Deposited

• The Authorised Dealer (AD) Bank facilitating the LRS remittance collects the applicable TCS amount from the remitter at the time of debiting the account for the remittance. Ensure sufficient funds are available for both the remittance amount and the TCS.
• The AD Bank deposits the collected TCS with the government.
• The TCS amount collected is reflected against the remitter’s PAN in their Form 26AS (Annual Tax Statement) and Annual Information Statement (AIS) available on the Income Tax portal.
• The collector (AD Bank) is required to issue a TCS certificate (Form 27D) to the remitter, though often checking Form 26AS/AIS is more practical.

Claiming TCS Paid on LRS Remittances

A crucial point to understand about Tax Collected at Source (TCS) applied to LRS remittance is that TCS is NOT an additional tax. It is essentially an advance tax payment collected on behalf of the remitter. This collected amount can be claimed back or adjusted against your final tax liability.

Key Points:

• Credit Against Tax Liability: The TCS LRS amount collected from you can be claimed as a credit against your total income tax liability when you file your annual Income Tax Return (ITR) in India.
• Claiming a Refund: If the total TCS collected (along with any other advance tax paid or TDS deducted) exceeds your actual tax liability for the financial year, you are eligible to claim a refund of the excess amount from the Income Tax Department. The process for how to claim TCS refund LRS involves correctly reporting it in your ITR.
• Verification is Key: Before filing your ITR, it’s essential to verify that the TCS collected by the AD Bank has been correctly deposited and is reflected against your PAN in your Form 26AS and Annual Information Statement (AIS). You can access these statements through the Income Tax e-filing portal. You can only claim credit for TCS amounts that appear in these official statements. If there’s a discrepancy, contact the collecting bank.

Step-by-Step Guide: How to Claim TCS Credit/Refund in ITR

While the exact fields may vary slightly depending on the specific ITR form and year, the general process to how to claim TCS credit when filing your Income Tax Return is as follows:

1. Gather Documents: Collect all relevant documents, including your bank statements showing the remittance and TCS deduction, Form A2 copies, and most importantly, your TCS certificates (Form 27D) if received, or rely on Form 26AS/AIS.
2. Verify Form 26AS/AIS: Log in to the Income Tax portal and download your latest Form 26AS and AIS. Cross-check the TCS amounts shown there with your records.
3. Choose Correct ITR Form: Select the appropriate ITR form based on your income sources (e.g., ITR-1, ITR-2, ITR-3).
4. Enter TCS Details: While filling out your ITR (usually in the “Taxes Paid and Verification” section), locate the schedule/subsection related to “Tax Collected at Source”. Enter the required details as reflected in your Form 26AS (like TAN of the collector, amount subjected to TCS, TCS amount collected). The ITR utility often pre-fills this data from Form 26AS, which you need to verify and confirm.
5. Calculate Tax Liability: Complete all other sections of your ITR, reporting all your income sources accurately. You can use tools to estimate your potential TCS liability.
6. Claim Credit/Refund: The ITR utility will automatically calculate your total tax liability and adjust the claimed TCS (along with TDS and advance tax paid) against it. If the total tax paid exceeds the liability, the difference will be shown as refundable.
7. Submit and Verify ITR: Double-check all details in the ITR, submit it electronically, and complete the e-verification process (e.g., via Aadhaar OTP, Net Banking).
8. Track Refund: You can track the status of your refund on the Income Tax portal. Refunds are typically processed within a few weeks to a few months after ITR processing and credited directly to your pre-validated bank account linked with PAN.

Record Keeping: Meticulous record-keeping of all remittance transactions, purpose proofs, bank advice slips showing TCS, and Form 26AS/AIS is crucial for smoothly claiming TCS credit/refund.

Form 15CA & 15CB Compliance for LRS

Beyond TCS on LRS, another critical compliance aspect for outward remittance from India involves Form 15CA and Form 15CB. These forms relate to reporting remittances to the Income Tax Department and ensuring appropriate taxes (if any) are deducted or accounted for, primarily under Section 195 of the Income Tax Act, 1961, which deals with tax deduction on payments to non-residents.

What are Form 15CA and Form 15CB?

• Purpose: These forms are essentially reporting mechanisms for payments made to non-residents. Their goal is to help the Income Tax Department track foreign remittances and verify if applicable taxes have been paid.
• Form 15CA: This is a declaration filed online by the person making the remittance (the remitter). It contains details of the payment, the remitter, the recipient, and tax applicability/deduction. Different parts (A, B, C, D) of Form 15CA apply depending on the situation.
• Form 15CB: This is a certificate issued by an independent Chartered Accountant (CA). It certifies details of the remittance, including the nature of the payment, applicability of tax treaties (DTAA), and the appropriate amount of tax (if any) required to be withheld under Section 195 before making the payment. Form 15CB is generally required when the remittance is taxable and exceeds a certain threshold, necessitating CA certification before Form 15CA (Part C) can be filed.
• Governing Law: The requirement for these forms stems from Section 195(6) of the Income Tax Act, 1961 and is elaborated under Rule 37BB of the Income Tax Rules, 1962.

When are Form 15CA/CB Required for LRS?

The applicability of Form 15CA LRS and Form 15CB LRS depends primarily on two factors: the amount of remittance and whether the payment is chargeable to tax in India in the hands of the non-resident recipient.

• General Rule: Form 15CA (and potentially Form 15CB) is required if the aggregate amount of remittance(s) to a non-resident during a financial year exceeds INR 5 Lakh AND the payment is chargeable to tax in India.

• Applicability Rules (based on Rule 37BB):

  • Condition: Amount ≤ INR 5 Lakh in FY AND Payment is Chargeable to Tax.

    • 15CB Required? No.
    • Form 15CA Part: Part A.
    • Rule 37BB Relevance: Rule 37BB(3) exemption does not apply as payment is taxable.

  • Condition: Amount > INR 5 Lakh in FY AND Payment is Chargeable to Tax.

    • 15CB Required? Yes.
    • Form 15CA Part: Part C.
    • Rule 37BB Relevance: Rule 37BB(3) exemption does not apply as payment is taxable.

  • Condition: Payment is NOT Chargeable to Tax in India (regardless of amount, but see specific exemptions below).

    • 15CB Required? No.
    • Form 15CA Part: Part D.
    • Rule 37BB Relevance: General exemption under Rule 37BB(3) may apply (making Part D necessary), unless it falls under specific listed exemptions where no form is needed at all.

  • Condition: Payment is for a type listed in the specific Rule 37BB exemption list (33 types) AND Payment is NOT Chargeable to Tax in India.

    • 15CB Required? No.
    • Form 15CA Part: Not Required.
    • Rule 37BB Relevance: Rule 37BB(3)(ii) provides explicit exemption from filing.

  • Condition: Remittance is made by an individual under LRS not requiring RBI approval AND Payment is NOT Chargeable to Tax in India.

    • 15CB Required? No.
    • Form 15CA Part: Not Required.
    • Rule 37BB Relevance: Rule 37BB(3)(i) provides exemption from filing.

Understanding the Parts of Form 15CA

• Part A: Filed if the remittance is taxable and the aggregate amount in the FY does not exceed INR 5 Lakh.
• Part B: Filed if the remittance is taxable, exceeds INR 5 Lakh, and an order/certificate under Section 195(2), 195(3), or 197 of the Income Tax Act has been obtained from the Assessing Officer for lower/nil deduction.
• Part C: Filed if the remittance is taxable and the aggregate amount in the FY exceeds INR 5 Lakh. Requires obtaining Form 15CB (CA Certificate) before filing.
• Part D: Filed if the remittance is not chargeable to tax under the Income Tax Act (and not covered by the specific exemptions where no form is required).

Rule 37BB Exemptions - Crucial for LRS

Rule 37BB provides significant relief from filing Form 15CA (and consequently 15CB) for many common LRS transactions, provided the payment is not taxable in India. Understanding what is Rule 37BB exemption LRS? is key:

• Rule 37BB(3)(i): States that no information (i.e., Form 15CA) is required to be furnished for a remittance made by an individual which does not require prior RBI approval under its LRS guidelines. This covers most typical LRS remittances within the $250k limit.

• Rule 37BB(3)(ii): Provides a specific list of 33 payment types (identified by RBI purpose codes) for which Form 15CA is not required.

• Crucial Clarification: Both these exemptions apply ONLY IF the remittance amount is NOT chargeable to tax in India in the hands of the non-resident recipient. If a payment (e.g., for services rendered, royalties, interest, etc.) is taxable in India and exceeds INR 5 Lakh, Form 15CA (Part C) and Form 15CB are mandatory, even if it’s a common LRS purpose like investment or donation.

• Common LRS Examples often Exempt under Rule 37BB (if non-taxable):

  • Indian investment abroad (Equity, Debt, Real Estate - Purpose Codes S0001-S0005)
  • Loans extended to Non-Residents (S0011)
  • Travel under Basic Travel Quota (BTQ) (S0302)
  • Travel for medical treatment (S0304)
  • Travel for education (including fees, etc.) (S0305)
  • Remittance towards personal gifts and donations (S1302)
  • Remittance by non-residents towards family maintenance (S1301)

It’s vital to correctly determine the taxability of the remittance. If unsure, it is highly recommended to consult a Chartered Accountant for complex tax situations.

Practical Steps for Filing

• Forms 15CA and 15CB are filed electronically through the Income Tax Department’s e-filing portal.
• If Form 15CB is required, it must be obtained from a CA first and its acknowledgment number quoted while filing Part C of Form 15CA.
• The AD Bank will typically require the acknowledgment receipt of the online filed Form 15CA before processing remittances that necessitate the form.

LRS and International Financial Services Centres (IFSCs) - The GIFT City Opportunity (July 2024 Update)

A significant recent development impacting the Liberalised Remittance Scheme (LRS) involves India’s International Financial Services Centres (IFSCs), particularly GIFT City (Gujarat International Finance Tec-City). Key changes introduced by the RBI and the International Financial Services Centres Authority (IFSCA) in July 2024 have expanded the scope of using LRS funds within the IFSC framework.

What is an IFSC (GIFT City)?

An IFSC (International Financial Services Centre) caters to customers outside the domestic economy. It deals with flows of finance, financial products, and services across borders. GIFT City is India’s first operational IFSC, designed to be a global hub for financial services, offering benefits like a business-friendly regulatory environment, tax incentives, and access to international markets from within India.

The July 2024 RBI & IFSCA Changes

Prior to July 10, 2024, resident individuals could remit funds under LRS to IFSCs primarily for limited purposes like investing in specific IFSC securities or paying education fees to foreign institutions located within the IFSC.

The circular issued by the RBI on July 10, 2024 (A.P. (DIR Series) Circular No. 15) significantly broadened this scope. The key changes allow AD Banks to facilitate LRS remittance to IFSCs for:

1. All permissible LRS purposes: Resident individuals can now remit funds under LRS to IFSCs for any purpose permitted under the scheme (both current and capital account), not just the previously restricted ones. This includes LRS investment abroad (shares, property, etc.), gifts, donations, maintenance of relatives, etc., routed through the IFSC.
2. Opening Foreign Currency Accounts (FCAs): Crucially, resident individuals are now permitted to open and maintain Foreign Currency Accounts (FCAs) in freely convertible currencies (like USD, EUR, GBP) with banking units (IBUs) situated within IFSCs (like GIFT City) using funds remitted under LRS.

What Does This Mean for You? (Practical Implications & Benefits)

The LRS IFSC liberalisation offers several potential advantages for resident Indians:

• Easier Global Investments: It potentially simplifies making and managing overseas investments from a jurisdiction within India, leveraging the IFSC ecosystem. You can remit funds under LRS to your IFSC FCA and then undertake regulations for overseas investments globally from that account.
• Holding Foreign Currency: An FCA in GIFT City allows you to hold foreign currency legally, which can be beneficial for future expenses like children’s education abroad, international travel, medical treatment, or simply as a hedge against currency depreciation. Funds must generally be used or repatriated within 180 days unless reinvested.
• Regulatory Ecosystem: Operating within India’s IFSC provides a potentially more familiar regulatory and legal framework compared to dealing entirely with offshore banks/platforms.
• Wealth Management: GIFT City is emerging as a wealth management hub, offering various investment products like AIFs, structured deposits, etc., accessible through LRS via an FCA.

How to Utilize LRS in IFSC (High-Level Steps)

The practical implementation is still evolving, but the general process involves:

1. Engage with IFSC Banking Units (IBUs): Identify and contact banks that have established IBUs within GIFT City (e.g., SBI, ICICI, HDFC, Axis, Kotak, Standard Chartered have IBUs there).
2. Open an FCA: Follow the bank’s procedure to open Foreign Currency Account GIFT City LRS process 2025. This will typically involve KYC documentation similar to opening a domestic account (PAN, Address Proof, Identity Proof, possibly NRI status proof if applicable, though RIs can now open FCAs).
3. Make LRS Remittance: Initiate an LRS remittance from your domestic Indian Rupee account to your newly opened FCA in the IFSC IBU, specifying the purpose as per LRS rules. The usual LRS documentation (Form A2) and compliance (TCS, possibly Form 15CA/CB if applicable) will apply to this remittance leg.
4. Utilize Funds from FCA: Once the funds are credited to your FCA in the IFSC, you can use them for permissible LRS current or capital account transactions globally, as facilitated by the IFSC IBU.

It’s advisable to consult directly with the IFSC banks for their specific procedures and offerings. For more details, you might want to learn more about investing via GIFT City IFSC.

LRS for Non-Resident Indians (NRIs)

A common point of confusion is whether Non-Resident Indians (NRIs) can utilize the Liberalised Remittance Scheme (LRS).

• Clarification: LRS is NOT for NRIs: The LRS scheme is explicitly available only to Resident Individuals as defined under FEMA. NRIs are NOT eligible to remit funds out of India under the LRS framework. The scheme facilitates remittances by residents to overseas destinations or recipients (who could be NRIs). Can NRI use LRS scheme? The answer is no, not for remitting their own funds out of India.
• Resident Gifting/Loaning to NRIs: While NRIs cannot use LRS themselves, Resident Individuals can use their own $250,000 LRS limit to send money abroad as a gift or loan to their NRI/PIO relatives (as defined under the Companies Act). This is a frequently used permissible transaction under LRS. The resident remitter must comply with all LRS formalities (Form A2, limit monitoring, TCS, etc.).
• NRO Account Remittances: NRIs seeking to remit funds out of India generally do so from their Non-Resident Ordinary (NRO) accounts. Remittances from NRO accounts are subject to different rules and limits, typically up to USD 1 million per financial year, subject to tax compliance (often requiring Form 15CA/CB). These are not governed by LRS. You can find more information on rules for NRI remittances.
• NRE/FCNR Accounts: Funds held in Non-Resident External (NRE) accounts or Foreign Currency Non-Resident (FCNR) accounts are generally considered freely repatriable, meaning they can be transferred abroad without the restrictions or limits associated with NRO accounts or LRS.

In summary, LRS is a facility for residents sending money out, not by non-residents sending money out. Residents, however, can use LRS to send funds to NRIs as gifts or loans.

Practical Considerations & Best Practices

Successfully navigating LRS remittance involves careful planning and adherence to best practices to ensure smooth transactions and avoid compliance issues.

Importance of Purpose Declaration

• Accuracy is Critical: When filling out Form A2, accurately declaring the purpose of remittance is paramount. This determines:
  • Whether the transaction is permissible under LRS.
  • The applicable TCS LRS rate (especially with different rates for education, medical, tour packages, and other purposes effective April 1, 2025).
  • Whether Form 15CA/CB might be required (based on taxability linked to purpose).
• Consequences of Incorrect Declaration: Providing incorrect purpose information can lead to incorrect TCS application, non-compliance with FEMA regulations, and potential scrutiny or penalties from RBI or the Income Tax Department. Always choose the most specific and accurate LRS purpose code provided by the bank.

Exchange Rate Fluctuations

• Impact on Limits: The LRS limit is set in USD ($250,000), but transactions often happen in other currencies. Fluctuations in the INR-to-foreign currency exchange rate can impact how much foreign currency you receive for your INR and how much of your USD limit is utilized.
• TCS Threshold Impact: Similarly, the INR 10 Lakh threshold for TCS is fixed in Rupees. Significant exchange rate movements could mean that a remittance planned below the threshold might inadvertently cross it when converted to INR by the bank on the transaction date.
• Planning: Factor in potential exchange rate volatility when planning large remittances close to the LRS limit or the TCS threshold. Some platforms might offer fixed exchange rates for a short period.

Record Keeping

• Maintain Thorough Records: It cannot be stressed enough – keep meticulous records of all LRS transactions for several years. This includes:
  • Copies of submitted Form A2.
  • Bank statements showing the remittance debit and any TCS on LRS collected.
  • Proof related to the purpose of remittance (e.g., invoices, offer letters, agreements).
  • Copies of filed Form 15CA and Form 15CB (if applicable).
  • Details from Form 26AS/AIS confirming TCS deposit.
• Why it Matters: These records are essential for demonstrating compliance during any potential inquiry by RBI or tax authorities, and crucially, for claiming TCS credit/refund accurately during ITR filing.

Choosing an Authorised Dealer

• Factors to Consider: While many banks offer LRS services, consider factors like:
  • Exchange Rates: Compare the rates offered.
  • Fees and Charges: Check remittance fees, correspondent bank charges.
  • Online Platform: Usability and features of their online remittance portal (if you prefer digital).
  • Customer Support: Availability and responsiveness for queries.
  • Processing Time: Typical turnaround time for remittances.

By paying attention to these practical aspects, you can manage your outward remittance needs more effectively and ensure you ensure compliance with FEMA regulations.

Navigating India’s Liberalised Remittance Scheme (LRS) requires a clear understanding of its framework, limits, and associated compliance requirements. As we’ve explored, the scheme empowers resident individuals to send money abroad up to USD $250,000 per financial year for a wide array of permitted purposes, covering both current and capital account transactions.

Key takeaways include the critical importance of adhering to the annual limit, understanding the distinction between permitted and prohibited transactions, and accurately declaring the purpose of each LRS remittance. The implementation of Tax Collected at Source (TCS), especially with the revised rules effective April 1, 2025 under Budget 2025 (introducing the INR 10 Lakh threshold and adjusted rates), necessitates careful calculation and planning. Remember, TCS LRS is adjustable against your tax liability, so understanding how to claim TCS credit when filing your Income Tax Return is vital.

Furthermore, compliance with Form 15CA & Form 15CB requirements, particularly understanding the crucial Rule 37BB exemptions for non-taxable remittances, is essential to avoid procedural hurdles. The recent opening up of the LRS IFSC route via GIFT City, allowing remittances for all LRS purposes and the maintenance of Foreign Currency Accounts (FCAs), presents exciting new opportunities for managing global finances.

Ultimately, compliance and careful planning are paramount. Always ensure your documentation is accurate, stay updated on regulatory changes, maintain thorough records, and consider seeking professional advice. For complex scenarios involving taxability or significant amounts, it’s wise to consult a Chartered Accountant for complex tax situations or a financial advisor. If you need further assistance navigating LRS compliance, feel free to contact our experts for assistance.

Frequently Asked Questions

What is the exact LRS limit for FY 2025-26?

The LRS limit for the financial year 2025-26 (April 1, 2025 - March 31, 2026) remains USD $250,000 per resident individual. This covers all permissible current and capital account transactions combined.

Is TCS applicable from the first rupee remitted under LRS?

No (generally). Effective April 1, 2025, for most LRS purposes (except overseas tour packages), TCS applies only on the aggregate amount exceeding INR 10 Lakh in a financial year. For amounts up to INR 10 Lakh (for purposes other than tour packages), TCS is NIL or 5% only on the excess, depending on the purpose. For overseas tour packages, TCS applies differently (5% up to 10L, 20% above).

How is the INR 10 Lakh TCS threshold calculated if I use multiple banks?

The INR 10 Lakh threshold for TCS LRS is tracked based on your PAN (Permanent Account Number). It is the aggregate limit across all remittances made through any Authorised Dealer (AD) bank during the financial year. Banks are required to check previous remittances in the FY to determine if the threshold is breached.

Do I need Form 15CA/CB for sending a gift under LRS below INR 5 Lakh?

Likely No. Sending a gift under LRS is generally considered non-taxable in India for the non-resident recipient. As per Rule 37BB(3)(i), remittances by individuals under LRS not requiring RBI approval (like gifts within the $250k limit) are exempt from Form 15CA filing if the payment is not chargeable to tax in India. Since the amount is also below INR 5 Lakh, Form 15CA/CB would typically not be required under these conditions.

Can I use LRS to invest in cryptocurrency abroad?

No. Remittances under LRS for the purpose of purchasing or investing in cryptocurrencies, virtual currencies, or tokens are explicitly prohibited by the RBI. AD Banks will reject such transactions.

What happens if my PAN is inoperative?

If your PAN becomes inoperative (e.g., not linked with Aadhaar), you will be subjected to higher TCS rates on your LRS remittances as per Section 206CC/206CCA (as applicable) of the Income Tax Act. Ensure your PAN is active to avail the standard TCS rates.

Can my family combine limits to buy property overseas?

Generally, No. While family members can consolidate limits for current account transactions, “clubbing” limits for capital account transactions like purchasing property is not allowed unless the family members involved are joint owners of the overseas property being acquired. Each individual can use their own $250,000 limit towards their share if they are co-owners.

How long does it take to get a TCS refund?

The timeline for receiving a TCS refund depends on the Income Tax Department’s processing time for your Income Tax Return (ITR). After filing and verification, ITRs are typically processed within a few weeks to a few months. If a refund is due, it is usually credited to your registered bank account shortly after processing is complete. Filing your ITR early helps expedite the process.

Can I open an FCA (Foreign Currency Account) in GIFT City now using LRS?

Yes. Following the RBI circular of July 10, 2024, resident individuals can now open and maintain FCAs with banking units in IFSCs like GIFT City using funds remitted under LRS. You need to contact an eligible bank operating in the IFSC to initiate the account opening process.

Is LRS applicable for business remittances by companies or firms?

No. LRS is exclusively for Resident Individuals, including minors. Corporates, partnership firms, HUFs, and trusts have separate FEMA regulations governing their outward remittances for business purposes.

What are the penalties for non-compliance with LRS/FEMA?

Non-compliance with LRS rules or other FEMA provisions can attract significant penalties. Under FEMA Section 13, a penalty of up to three times the sum involved in the contravention (or INR 2 Lakh if the amount is not quantifiable) can be imposed. Further penalties for continuing contravention (up to INR 5,000 per day under Section 14) can also apply. The RBI also offers a compounding mechanism to settle certain contraventions.