What is LRS (Liberalised Remittance Scheme)?

LRS is a legal and formal channel that enables Indian residents to transfer their Indian Rupees and send out of the country and convert to a foreign currency. The full form for LRS is Liberalised Remittance Scheme. LRS was started in 2004 by India’s central banking regulator, RBI (Reserve Bank Of India). 

As per the current rules, an Indian resident can remit out a maximum of $2,50,000 per financial year. This is approximately Rs.2.07Cr. If there are 4 individuals in a family, then the family can remit up-to $1Mn [approx : Rs.8.3 Cr] in a financial year with ofcourse individual limits of $250000 remaining inforce. Even a minor individual in a family is eligible to remit out up-to $250,000. However, the resident Indian must possess a valid PAN card (Income Tax Permanent Account number) including the minor individual must also have a valid PAN number. 

What are the purposes under which remittance is allowed?

Indian residents can use the LRS scheme to remit out money for various diverse purposes ranging from investing abroad ; spending for Travel abroad ; paying for International Education fee or sending money to your family members. Following table highlights the details of top  purposes along with purpose codes as prescribed by RBI :
 

You can see the detailed list of purpose codes here https://www.rbi.org.in/upload/notification/pdfs/52220.pdf

What is the LRS not allowed for?

LRS is not allowed for speculative and betting activities such as Lotteries/ sweep stakes, Derivative trading in foreign markets or for margin calls abroad. Indian residents should also use precaution and check with their banks if remittance for investing in cryptocurrency is permitted or not. LRS is also strictly not allowed into nations that come under Financial Task Force (FATF) list that are basically countries that are marked as non cooperative/ risky.

What are the costs of LRS?

There are two kinds of costs of LRS.

First : Cost of exchanging your money from Rupees to a foreign currency - known as the interchange cost. Your bank account/ money changer charges this interchange fee. There is no standard fee and it varies from 0.20% to even 3 to 4%. Some banks / money changers may also charge you a fixed processing fee.

Second : The second type of cost is the GST applied to the exchange fee charged by your bank or money changer. This fee is calculated on the amount of currency exchanged and can be up to 0.18%, depending on the applicable rate tiers#.
 

Example below showcases how the costs on LRS work.

Assume, you want to send Rs.50,000 to the USA for a specific purpose. Further, assume the USD to INR going exchange rate on a particular day is $1 = Rs.83. It means that every One dollar costs your Rs.83 exchange rate. Now further assume that your bank charges your 1%. Then the costs work out as follows:


Amount to be Sent : Rs.50,000
Exchange rate on x date and time : $1 = Rs.83
Interchange fees : 1%
Effective rate of $ post interchange : $1=Rs.83.83

Less costs
Interchange fees : Rs. 500
GST on Interchange fees: Rs. 90

Final USD value against INR : $595.30

[ (50,000 - 590) / 83 ]

The bank will also charge a processing fee or commission, which typically ranges from Rs. 500 to Rs. 1,000, plus 18% GST.

#Goods and Services Tax: All foreign exchange transactions are subject to levy of Goods and Services Tax (GST). Presently, the applicable rate of GST is as under. 

What is TCS (Tax collected at Source) for LRS?

There is NIL TCS for remittances up to Rs. 7 lakhs in a financial year. However, for remittances exceeding Rs. 7 lakhs, a 20% TCS rate applies to all purpose codes, except for overseas education, where a 5% TCS rate is applicable. Read here about TCS on LRS.

Is LRS applicable for NRIs?

LRS is not applicable for NRIs’ as LRS transactions can only be conducted out of an Indian resident’s bank account and not from an NRO or NRE account. 

If I buy & book international air tickets and hotels abroad from a travel agent or applications like Goibibo/ MMT etc, then does the LRS limit of $250000 apply?

The dollar equivalent value for International Air tickets and foreign hotels booked in Rupees from Indian agents as well as Indian online travel applications like Goibibo does not add up to the LRS limits. For example if you book hotels and air tickets worth Rs.5 lacs from these Indian travel agents/ Indian online travel apps, then you still have the full limit of $2,50,000 per financial per individual available. However, it must be note that in case you use your credit card to book a hotel or flight in a foreign currency on an international travel website or similar, then this value will become part of the LRS limits.

If I take a foreign exchange card or buy foreign currency or use my credit card for foreign transactions, then does the LRS limit of $250000 apply?

Yes. All of these are foreign transactions and form a part of LRS limit. For example when you ask you bank to issue you a foreign forex card, you are actually buying foreign exchange and loading it up on this card. This hence forms as a part of an LTS transaction and is subject to limits. This is similar to simply buy foreign exchange notes. Credit cards transaction done on foreign websites and in foreign currency or credit cards swiped overseas on various retail outlets/ merchant shops also forms as a part of an LRS transaction is clearly subject to the financial year limit of $2,50,0000 

What are the documentations required to conduct an LRS transaction?

KYC : You need to have a valid PAN (Permanent account number) and documents like Aadhaar as proof of address and proof of identity. Ensure that your PAN and Aadhaar are linked. 

Form A2: This form is called the “Application for remittance abroad”. This form needs to be filled (in ink or digitally) and signed. This form comprises purpose, sender bank details, recipient bank details, purpose of remittance and even proof of remittance.  “

Income proof : For large value of remittance or for sending money for investing abroad, you need to also provide income proof. This may comprise documents such as Income Tax Returns (ITR) or 12 month bank statement of your savings account. The Indian authorities and banks need to ascertain that INR that you are remitting out, is being sent with proper sources of income. 

What happens if I breach the $250,000 limit?

You will not be allowed to remit beyond this value if you breach this limit within or during a financial year. An Indian financial year starts from 1st April and ends on March 31st in the next calendar year. 

What happens when I bring back money to India?

The money is converted by your bank from foreign currency to INR and deposited back to your savings a/c. In this case too there can be an interchange spread charged by the banks as well as GST on this spread charge.