Liberalized Remittance Scheme, Indians living overseas for school or other reasons frequently require financial support from their Indian relatives and friends. However, prior to 2004, the Foreign Exchange Management Act of 1999 imposed stringent limitations on the transfer of funds from India to other nations. In order to promote seamless international transactions, the Reserve Bank of India (RBI) implemented the LRS. To learn more about this plan in detail, scroll down.
Contents
What is LRS?
Liberalized Remittance Scheme is the full name of the LRS. The Reserve Bank of India launched this foreign exchange policy effort in 2004. Its goal was to make sending money outside of India easier and more efficient. This program assisted Indians in getting around the Foreign Exchange Management Act (FEMA) of 1999’s prohibitions on overseas money transfers. Residents may freely transfer money up to a specific amount for a variety of approved current or capital account transactions under LRS.
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LRS scheme for NRIs
A savings account is used for the transfer since Indian residents are covered by the LRS plan. Indian banks prohibit non-resident Indians from opening savings accounts. Therefore, they are not allowed to send money from India, but they are allowed to send money from FCNR, NRO, and NRE accounts outside of India as long as they adhere to the rules and provide the required paperwork:
- An NRO account can send up to $10,000 USD.
- Payments made from an FCNR or NRE account are unrestricted.
- Indian residents now find it easier to handle financial transactions overseas thanks to the Liberalized Remittance Scheme.
- The money can be used for schooling, debt reduction, and other necessities. Another excellent option is to invest outside of India to make your investing portfolio more diverse.
Liberalized Remittance Scheme availability
The following people and situations are eligible for the Liberalized Remittance Scheme:
- According to the Foreign Exchange Management Act, all residents, including students and children, are eligible to use LRS.
- The eligible citizens need to possess a passport, a valid Permanent Account Number (PAN), and an Indian bank account.
- It can be used for personal, professional, educational, or other objectives.
Liberalized Remittance Scheme limit
A resident individual may send up to USD 250,000 for approved transactions each fiscal year under the LRS. Education, medical care, employment, emigration, travel, investment, and so on all have the same LRS restriction. Nevertheless, the remittances cannot be utilized for real estate purchases, lottery ticket purchases, margin trading, etc.
Tax on Liberalised Remittance Scheme
Profits from international investments made through LRS are subject to Indian taxation, contingent on the duration of the investment. Since they are considered long-term capital gains, investments held for longer than two years are liable to a 20% tax on the whole profit. Regular income tax slab rates apply to investment gains generated for less than two years.
Any remittances over Rs. 7,00,000 are subject to a 5% TCS (Tax Collected at Source) under the LRS system. However, you can claim a refund for the withheld TCS on Form 26AS when you file your income tax return (ITR).
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RBI guidelines for outward remittance
Transferring money from an Indian account to a foreign account is known as an outward remittance. A demand draft issued in the beneficiary’s or individual’s name may be used to pay an external remittance in accordance with RBI regulations. To keep up with international accounts, you can also create a bank account outside of India. To accomplish the same, follow these steps:
- Select a bank branch that will handle all payments and is an authorized dealer.
- Don’t forget to bring your PAN card.
- Be sure you adhere to KYC (Know Your Customer) and AML regulations.
- To buy foreign money, complete Form A2.
- Finally, under LRS, banks are not allowed to provide citizens any kind of credit services.
Benefits of Liberalised Remittance Scheme in India
The following are a few noteworthy advantages of LRS:
- Investment portfolio diversification: Through the LRS, people can purchase overseas equities, bonds, mutual funds, and real estate, among other assets.
- Studies abroad: Through the LRS, people can send money for living expenses, books, and tuition costs associated with their studies abroad. This makes it possible for students to attend universities and institutions abroad to further their education.
- Medical care: People can send money for medical care outside of India via the LRS. For people in need of specialized medical care that is not available in India, this is very beneficial.
- Travel: Through the LRS, people may send money for things like hotel reservations, tickets, and other travel-related costs.
- Start-ups and business investments: Individuals can invest in joint ventures, start-ups, and overseas companies through the LRS. This facilitates business owners’ and entrepreneurs’ international business expansion.
- Donations and gifts: The LRS allows people to give money to charity organizations or family members who live outside of India.
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Conclusion
The Liberalized Remittance Scheme has opened the door for foreign investment, international commerce, and more since it was first implemented. For a smooth transaction, you must, however, adhere to the Liberalized Remittance Scheme’s regulations, including its eligibility restrictions and paperwork requirements.
Faq’s
Q. What’s the LRS plan?
Ans: To provide hassle-free foreign exchange, the RBI launched the Liberalized Remittance Scheme, or LRS. In a fiscal year outside of India, an Indian resident may transfer up to USD 250,000 under this arrangement.
Q. Who is qualified to get LRS?
Ans: LRS is available to Indian residents, in addition to corporates, partnership businesses, HUFs, etc. If a minor’s guardian signs Form A2, they are also eligible for LRS.
Q. What is the LRS limit at the moment?
Ans: As of right now, the Liberalized Remittance Scheme has a $250,000 annual cap. With the Reserve Bank of India’s prior approval, you can send a larger sum.
Q. What advantage does LRS offer?
Ans: The LRS system has several advantages. It enables you to purchase goods from overseas, diversify your financial portfolio, send money to family members living overseas for medical and educational assistance, and more.
Q. Is LRS subject to taxes?
Ans: 20% tax is applicable to profits from investments withholding periods longer than 24 months. For transfers of Rs 7,00,000 or higher, a 5% TCS must be paid.
Q. Can I use LRS to claim TCS?
Ans: Yes, you are able to request a refund of the TCS that was deducted. When completing your ITR, all you have to do is complete Form 26AS.
Q. Does the Liberalized Remittance Scheme allow us to receive money?
Ans: Only overseas remittance—that is, transferring money outside of India—is covered by the Liberalized Remittance Scheme. The requirements for receiving and using foreign revenue for Indian people and businesses are covered under the Foreign Contribution (Regulation) Act, of 2010.
Q. The Liberalized Remittance Scheme was launched when?
Ans: In 2004, the Reserve Bank of India launched the Liberalized Remittance Scheme. It makes the foreign exchange process more efficient.
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