LRS (Liberalised Remittance Scheme): The USD 250K Route for Sending Money Abroad

LRS is India's framework for allowing resident Indians to send money abroad. Every time a parent sends money to an NRI child for education, a resident invests in foreign stocks, or someone sends a gift to family abroad, LRS is the mechanism. It does not apply to NRIs directly, but it is deeply relevant to every NRI whose family sends them money from India.

Who Can Use LRS?

Only resident Indians (individuals, not companies). NRIs have separate remittance mechanisms:

• NRIs: Repatriate from NRO accounts (USD 1M/year with Form 145/146) or freely from NRE/FCNR accounts.
• Residents: Use LRS (USD 250K/year) via their resident bank account with Form A2.

Permitted Purposes

• Maintenance of close relatives abroad (including NRI children, parents, spouse)
• Gifts and donations to NRIs or foreign persons
• Education abroad (tuition, living expenses)
• Medical treatment abroad
• Travel (business and personal)
• Investment in foreign equity, debt, mutual funds, and real estate
• Opening foreign bank accounts
• Lending to NRIs who are close relatives

Not permitted under LRS: Trading in foreign exchange on margin, lottery/sweepstake remittances, purchase of Foreign Currency Convertible Bonds issued by Indian companies abroad, and remittances to countries identified by FATF as non-cooperative.

TCS on LRS Remittances

Tax Collected at Source applies on LRS remittances exceeding Rs 7 lakh (cumulative) in a financial year:

TCS is not an additional tax. It is collected by the bank at the time of remittance and appears as a tax credit in the remitter's Form 26AS. The remitter claims it as a credit when filing their ITR. If total tax liability is lower than TCS collected, the excess is refunded.

LRS Process: Step by Step

1. Visit your AD Bank (Authorised Dealer - any scheduled commercial bank).
2. Fill Form A2: Declare the purpose, amount, beneficiary details, and confirm you have not exceeded USD 250,000 in the year.
3. Provide PAN: Mandatory for remittances above Rs 50,000.
4. Bank deducts TCS (if applicable) and processes the remittance.
5. Bank reports to RBI and the Income Tax department.

LRS and NRI Families: Common Scenarios

Parents Sending Money to NRI Children

A resident parent can send up to USD 250,000/year to their NRI child for maintenance, gift, or education. TCS of 20% applies above Rs 7 lakh (for gifts/maintenance). The parent claims TCS credit in their ITR. The NRI child receives it tax-free in India (gift from relative exemption under Section 56(2)(x)), but should check taxability in their country of residence.

Resident Investing in Foreign Stocks/Funds

LRS covers investment in foreign securities. TCS at 20% applies above Rs 7 lakh. When the resident later becomes NRI (e.g., moves abroad for work), the foreign investments made under LRS remain valid. Capital gains on sale are taxable based on residential status at the time of sale.

Returning NRI Who Has Become Resident

A returning NRI who has become an Indian resident can use LRS to send money abroad from their resident accounts. This is relevant for maintaining overseas investments, sending money to family abroad, or funding foreign property after becoming resident. The NRO repatriation route is no longer available once you are resident; LRS is the correct mechanism.