Liberalised Remittance Scheme (LRS): Limits, TCS, and RBI Rules

Under the Liberalised Remittance Scheme, any resident individual in India can send up to USD 250,000 abroad each financial year without seeking case-by-case permission from the Reserve Bank of India. The scheme runs through authorized dealer (AD) banks, covers both spending purposes like travel or tuition and asset-building purposes like buying property or foreign shares, and comes with a defined list of prohibited uses, mandatory paperwork, and tax collected at source above a threshold. The liberalised remittance scheme limits and rules described below apply to natural persons only; companies, firms, trusts, and Hindu Undivided Families cannot use it.

Who Qualifies as a Resident Individual

Eligibility runs off your status under the Foreign Exchange Management Act, not the Income Tax Act. The starting test is whether you lived in India for more than 182 days during the preceding financial year. Intention matters too. If you left India for employment, business, or any purpose suggesting you plan to stay abroad indefinitely, you lose resident status regardless of the day count. Someone arriving in India for employment or with plans to stay for an uncertain period becomes a resident from day one, even without 182 days of prior stay.

You can be a resident for income tax purposes and a non-resident under FEMA at the same time, or the reverse. For LRS, FEMA status is what counts.

Minors are eligible; a natural guardian must countersign the LRS declaration form.¹

The USD 250,000 Annual Cap

The financial year runs April 1 to March 31. The USD 250,000 ceiling is cumulative across every bank you use, every account you hold, and every purpose combined. You cannot send USD 250,000 for a property purchase and another USD 50,000 for tuition in the same year without RBI approval.¹

Family members can pool their individual limits, but the conditions are narrower than most people assume. For immovable property abroad, relatives can consolidate limits as long as each person independently complies with the scheme. For capital account transactions like opening an overseas bank account or making an investment, pooling is only allowed if every contributing family member is a co-owner or co-partner in the account or investment.¹ A couple can pool limits to buy a flat in London if both names go on the deed; one spouse cannot funnel their limit into the other’s solo brokerage account.

What You Can Send Money For

Current account uses are spending-oriented outflows for personal needs. Permitted purposes include:

Private visits abroad, except to Nepal and Bhutan, which have separate foreign exchange arrangements.
Gifts to individuals and donations to organizations located outside India.
Education expenses, including tuition and living costs at a foreign institution.
Medical treatment abroad, including hospital and doctor fees.
Maintenance of close relatives living overseas.
Emigration and employment abroad, including settling-in costs.

Banks typically ask for supporting documents like university fee schedules or hospital cost estimates for education and medical remittances. For gifts or maintenance payments, you provide the recipient’s name and relationship details.¹

What You Can Acquire or Invest In Abroad

Capital account uses under LRS include:

Opening and maintaining a foreign currency account with an overseas bank.
Buying residential or commercial immovable property in another country.
Investing in foreign securities, including shares, mutual fund units, venture capital fund units, and debt instruments.
Extending rupee-denominated loans to NRI close relatives, within the USD 250,000 annual cap, made by crossed cheque or electronic transfer.¹

If you want to invest directly in a foreign business rather than buying listed shares, the Foreign Exchange Management (Overseas Investment) Rules, 2022 add restrictions. The foreign entity must not be engaged in financial services, and it must not have a subsidiary or step-down subsidiary in which you hold control.² Investments in foreign startups must come from your own funds, not borrowed money. These rules exist to prevent round-tripping, where money leaves India and returns disguised as foreign investment.

Remittances That Are Prohibited

Some uses are off-limits regardless of how much room you have inside the USD 250,000 cap:

Remittances out of lottery winnings, and money sent to buy lottery tickets, football pools, or sweepstakes abroad.
Margins or margin calls to overseas exchanges or counterparties.
Speculative trading in foreign currencies abroad.
Income derived from racing, riding, and similar activities.
Capital account remittances to countries identified by the Financial Action Task Force as non-cooperative, or to individuals and entities flagged by the RBI as posing terrorism-related risks.
Gifts of foreign currency from one resident to another resident for credit to that person’s overseas LRS account.

These flow from Schedule I of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 and from restrictions inside the RBI’s LRS framework.¹³

Tax Collected at Source Above ₹10 Lakh

Starting April 1, 2026, the bank collects tax at source when your LRS remittances in a financial year exceed a combined ₹10 lakh threshold. The threshold is calculated across all your LRS remittances, regardless of purpose, mode of payment, or which bank you use. Below that, no TCS applies.

Above ₹10 lakh, the rate depends on purpose:

Education funded by a loan from a financial institution: no TCS.
Self-funded education or medical treatment: 2% on the amount above ₹10 lakh.
All other purposes, including property, investments, gifts, and general remittances: 20% on the amount above ₹10 lakh.

Overseas tour packages bought through a tour operator carry a flat 2% TCS from the first rupee, without the ₹10 lakh threshold. If your PAN is inoperative because it isn’t linked to Aadhaar, the education and medical rate becomes 5% instead of 2%. The 20% rate is unchanged by PAN status.

TCS is not a final tax. It appears in Form 26AS as a credit against your PAN and adjusts against your income tax liability for the year; excess amounts come back as a refund when you file. The practical impact is cash flow. On a USD 250,000 remittance (roughly ₹2.1 crore at current rates), 20% TCS on the amount above ₹10 lakh locks up a substantial sum until the refund is processed.

Paperwork the Bank Will Ask For

Form A2

Form A2 is the core application. It is both your request to buy foreign exchange and your declaration of the remittance’s purpose. You pick a purpose code that matches the actual use of the funds and declare that the money is yours and will not be used for any prohibited activity.⁴ Responsibility for staying within the annual cap and complying with FEMA rests with you, not with the bank.¹

PAN

PAN is mandatory for every LRS transaction processed through an authorized dealer. The bank will not process the remittance without it.¹ Link your PAN to Aadhaar before you remit, or you face the higher TCS rate on education and medical transfers.

Form 15CA and Form 15CB

Where the remittance is taxable under the Income Tax Act, Form 15CA is filed online on the Income Tax Department’s e-filing portal before the transfer. Part A is used when the remittance or aggregate remittances during the financial year do not exceed ₹5 lakh. Part C applies when the aggregate exceeds ₹5 lakh and a Chartered Accountant has issued a certificate in Form 15CB. Part B applies when the aggregate exceeds ₹5 lakh but you hold a certificate or order from the Assessing Officer under specified provisions of the Act.

Form 15CB is the CA’s certificate, required for each taxable remittance that pushes your aggregate past ₹5 lakh in a financial year. The CA examines the payment’s taxability and certifies the applicable rate.⁵⁶ Banks will not release the transfer without a valid 15CA acknowledgment.

When You Need Prior RBI Approval

Most LRS transactions run through the automatic route, meaning the AD bank processes them without central bank involvement. You need prior RBI approval in these situations:

Any remittance that would push your financial year total past USD 250,000.
Setting up a wholly-owned subsidiary or joint venture abroad in sectors outside the automatic route, particularly those involving financial services.
Transfers to entities or countries under increased international monitoring, even within the cap.

Requests go through your AD bank, which forwards them to the RBI with supporting documents. Timelines vary and approval is not guaranteed.¹

Penalties for Breaking the Rules

Section 13 of FEMA sets the penalty for any contravention at up to three times the amount involved, where that amount can be quantified. Where it cannot be quantified, the penalty can reach ₹2 lakh. Continuing violations attract an additional penalty of up to ₹5,000 per day after the first day.⁷

Common triggers are exceeding the USD 250,000 cap without approval, misrepresenting the purpose on Form A2, and sending money for prohibited activities. Separately, failing to disclose foreign assets acquired through LRS on your income tax return can invoke consequences under the Income Tax Act and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

If the Recipient Is a U.S. Person

LRS governs the sending side. The receiving side may have its own reporting obligations if the recipient is a U.S. person. A U.S. person who receives gifts from a non-resident alien totaling more than $100,000 in a tax year must report them on IRS Form 3520. The form is informational and does not create tax on the gift, but failing to file it triggers steep penalties.⁸

Separately, if the funds are deposited into a foreign account held by a U.S. person and the aggregate value of all their foreign accounts exceeds $10,000 at any point in the year, they must file an FBAR with FinCEN.⁹ Families sending large sums to children studying or living in the U.S. often overlook these.

1
Reserve Bank of India. Liberalised Remittance Scheme (LRS)
2
The High Court of Delhi. Foreign Exchange Management (Overseas Investment) Rules, 2022
3
Indian Embassy USA. Foreign Exchange Management (Current Account Transactions) Rules, 2000
4
Reserve Bank of India. Form A2 – Application for Remittance Abroad
5
Income Tax Department. Form 15CA FAQs
6
Income Tax Department. Form 15CB User Manual
7
India Code. Foreign Exchange Management Act, 1999 – Section 13
8
Internal Revenue Service. Gifts from Foreign Person
9
Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)