All You Need To Know About RBI’s Liberalised Remittance Scheme 

A few years ago, sending money to a foreign nation for various purposes such as education, medical emergencies, etc. was a cumbersome, tiring, and time-consuming process. There was no structured or proper way to securely and safely send money internationally.

So, to streamline outward remittances of such funds, the Reserve Bank of India introduced the Liberalised Remittance Scheme (LRS).

This blog will shed light on:

• What is LRS?
• How can residents send money to foreign nations under LRS?
• Which transactions are allowed and prohibited under the scheme?
• What does LRS mean for NRIs

Let’s get started!

What Is The Liberalised Remittance Scheme?

RBI’s Liberalised Remittance Scheme (LRS) is a process that allows residents individuals to remit or send money to another country for investment, academics, buying property, and expenditure purposes during a financial year. 

As of date, an individual can send a total of USD 2,50,000 (per person) to a foreign country during a financial year, however, in numerous batches. Meaning, if a person has two children studying in the United States, they can send a total of USD 5,00,000 during a financial year.  

The Reserve Bank of India introduced this scheme on February 4, 2004, which was a result of one of the Tarapore Committee’s recommendations. It clearly defines proper guidelines and procedures that individuals must follow to smoothly send money abroad.

The Ministry of Finance has legalised the scheme under the Foreign Exchange Management Act of 1999. At present, the Enforcement Directorate enforces and looks over it.

Key Highlights Of The Liberalised Remittance Scheme

So now, let’s dig deep into some liberalised remittance scheme details. Some highlights of the scheme are as follows:

• Any person who is a resident of India (as per section-2(v) of the Foreign Exchange Management Act, 1999) can send funds via LRS
• LRS remittances can only be done via authorised dealers (ADs) such as banks listed by the Reserve Bank of India
• For every remittance processed under LRS, the requesting individual needs to provide their PAN details for payment processing and verification purposes
• Corporates, partnership firms, HUDs or charitable trusts cannot take advantage of this scheme
• The scheme is applicable in the case of sole proprietorship where there’s no legal difference between an individual and the owner
• Indians can send Money via LRS to any nation
• Senders can invest remitted amounts in shares, debt instruments, and for buying immovable properties in overseas markets

Remittance Purposes Defined Under LRS

The Liberalised Remittance Scheme of RBI defines a comprehensive list of purposes against which residents individuals can remit funds. The list has been divided into two categories,

• Current Account Transactions
• Capital Account Transactions

Let’s take a look at the categories.

Current Account Transactions

These account for those types of transactions that do not pose any change in the assets or liabilities of a person. 

As per Para-1 of Schedule III, as defined in the Foreign Exchange Management Amendment Rules, 2015, current account transactions allowed under LRS are as follows: 

• To send gifts to friends, family, acquaintances, etc. who live in a foreign country
• To send donations to charities operating abroad
• When shifting/settling in another country 
• When making private visits to foreign countries (excluding restricted nations defined as “Non-cooperative countries and territories” by the government) 
• When attending business meetings abroad 
• When going to a foreign country for medical check-ps or seeking treatments 
• Also for extending financial support to close relatives living outside of India
• When going abroad to attend specialised training programs such as diversity awareness training, sexual harassment prevention training, etc.
• When attending conferences, seminars, etc. in a foreign nation
• Send money to students studying in a foreign country to support their expenses including fees, living expenses, etc.   
• Transfer money even for employment purposes 

Capital Account Transactions

These are those that bring about a change in the assets and liabilities of a person. Capital account transactions allowed under LRS are as follows:

• Open, hold, or maintain a foreign currency account in a foreign country’s bank
• Purchase a property abroad
• Make investments in equity shares, mutual funds, debt instruments, venture capital funds, etc. in an overseas market
• Extend loans to NRI relatives in Indian Rupee as defined under the Companies Act, 2013
• Set up a Wholly Owned subsidiary (WOS) or a Joint Venture (JV) abroad

There are some prerequisites for Capital Account Transactions. These are as follows:

• To make remittances for Capital Account Transactions, an applicant must maintain a bank account for a period of at least one year before requiring the remittance
• ADs also ensure, with proper due diligence, that the source of funds and remittance is according to the guidelines for the Liberalised Remittance Scheme by the RBI

Are NRIs eligible for LRS?

Bank Accounts

The Liberalised Remittance Scheme is only available for all Indian residents living in the country irrespective of their citizenship. However, for NRIs with Indian bank accounts, the remittance rules are a bit different. 

A Non-resident Indian can hold any of the following bank account types in India.

• NRE (Non-resident external)
• NRO (Non-Resident Ordinary)
• FCNR (B) (Foreign Currency Non-Resident Bank Account)

As per the RBI’s guidelines, an NRI can remit up to USD 10,00,000 from India per financial year through their NRO account. 

Meanwhile, in the case of NRE and FCNR (B) accounts, there’s no defined upper limit. However, the RBI has imposed certain restrictions on the type of inward remittances allowed on the NRE and FCNR (B) accounts by the RBI. 

The RBI defines specific terms and conditions relating to NRI bank accounts in India. They must check the latest guidelines before proceeding with any remittances from the above-mentioned accounts. 

Loans

As mentioned above, a resident individual can extend loans to an NRI relative in Indian Rupee. However, the relative should have a close relationship. 

Thus, senders can send loans via crossed cheques or via electronic transfers with certain terms and conditions. These are as follows:

• The senders must give the loan interest-free and also with a maturity period of a minimum of 1 year
• They must send the loan to an NRO account of the close NRI relative
• The loan amount must be remitted outside of India
• The loan amount cannot exceed LRS’s defined limit of USD 2,50,000 per financial year 
• The loan extended will automatically reduce the sender’s LRS limit for the financial year  
• The sender or the receiver of the loan amount cannot use the money for making investments in-
  • Chit Funds
  • Nidhi Company
  • Agricultural or plantations activities
  • real estate business or building farmhouses including the development of townships, construction of commercial or residential premises, roads or bridges
• The receiver must repay the loan through inward remittance or via a debit to the NRO/NRE/FCNR account of the borrower 

Process For Remitting Funds Under Liberalised Remittance Scheme Regulations

So, how do you transfer money under LRS?

Well, the Reserve Bank of India indicates that only resident individuals can make remittances via Authorised Dealers (AD). 

These ADs must conduct due diligence to ensure that remittances do not breach any of the ​​Foreign Exchange Management Act Notifications as well as the rules defined under the Income Tax Act. 

They must also conduct a complete ‘Know Your Customer’ process of the senders and ensure no violation of ‘Anti Money Laundering’ rules before remitting funds to a foreign account. 

1. An applicant must furnish an application cum declaration to the AD that contains the following details: 

• Applicant name
• Name of Authorised Dealer’s branch 
• Receivers and Foreign Bank’s details 
• Purpose, its code, and the amount that the sender is remitting sent abroad 
• A self-declaration by the applicant stating that the amount that s/he is sending via LRS does not exceed the fiscal year limit
• A declaration stating that the sender will not use the funds for any of the purposes prohibited under LRS

2. The applicant must have a valid PAN (Permanent Account Number)
3. The applicant must designate a single AD branch via which s/he would make all the remittances under LRS
4. The application must submit a NOC in case they wish to make remittances through a different bank
5. The applicant must submit the source of funds by providing prior bank statements/IT returns which will help the AD banks verify details before making LRS remittances

Prohibited Transactions Under Liberalised Remittance Scheme?

The Section-3 of the Amendment Rules, 2015 lists a number of prohibited transactions under Liberalised Remittance Scheme regulations.

• Remitting funds against prohibited activities such as margin trading, lottery wins, banned magazines, etc.
• Remitting funds to purchase Foreign Currency Convertible Bonds issued by Indian Companies in foreign secondary markets
• Remitting funds to trade in foreign exchange in the overseas market
• Sending Capital account remittances, directly or indirectly to nations that the government identifies as either the Financial Action Task Force (FATF) or the “non-cooperative countries and territories”
• Likewise, directly/indirectly sending funds to individuals and entities that have been identified as posing a significant threat to committing acts of terrorism 

Parting Words

The Liberalised Remittance Scheme defined by the Reserve Bank of India is a practical step in the right direction. Its comprehensive and structured system has significantly helped residents individuals living in India to easily send money abroad for various purposes. It has also removed all the hassle and ambiguities which existed before. The scheme has brought about a much-needed shape benefiting all the stakeholders involved in the remittance process. 

Frequently Asked Questions