The name "Liberalised Remittance Scheme" sounds like a restriction. It's actually the opposite. Before LRS existed, Indian residents needed RBI approval for nearly every foreign exchange transaction. The LRS scheme India introduced in 2004 removed that bottleneck and gave individual residents the right to send up to USD 250,000 abroad each year without asking anyone's permission.
The Liberalised Remittance Scheme (LRS) allows Indian residents to remit up to USD 250,000 per financial year abroad for permitted purposes, including education, travel, investment, and maintenance of close relatives. All remittances under LRS require a PAN card. Tax Collected at Source (TCS) applies to remittances above specified thresholds. Verify current thresholds with your bank or a tax adviser.
If you're an Indian resident sending money abroad for any reason, LRS is the framework you're operating within. Here's how it works, what it covers, and what it costs in tax.
What Is the Liberalised Remittance Scheme?
The liberalised remittance scheme is an RBI policy that allows resident individuals in India to remit foreign exchange abroad for any permitted purpose, up to a specified annual limit. The current limit is USD 250,000 per financial year (April to March).
LRS applies to resident individuals only. NRIs (Non-Resident Indians) aren't covered because they already have different foreign exchange provisions under FEMA. Companies and firms can't use LRS either. Minors can remit under LRS through a guardian.
The RBI introduced LRS in February 2004 with an initial limit of USD 25,000. The limit has been revised several times and currently stands at USD 250,000. This covers all permitted remittances in a financial year, aggregated across all transactions and purposes.
What Can You Use LRS For? Permitted Purposes
LRS covers a broad range of personal and investment purposes. The RBI's list of permitted transactions includes:
Private visits abroad (tourism). Gift or donation to a person or institution abroad. Going abroad for employment. Emigration. Maintenance of close relatives abroad. Business travel. Medical treatment abroad. Education abroad. Purchase of immovable property abroad. Investment in foreign securities (stocks, bonds, mutual funds). Opening and maintaining a foreign currency account abroad.
What LRS cannot be used for:
Purchasing lottery tickets or sweepstakes. Margin trading or leveraged forex trading. Remittance to countries or entities identified by the Financial Action Task Force (FATF) as non-cooperative. Remittance to individuals or entities sanctioned by the RBI or OFAC. Capital account remittances to Nepal and Bhutan (covered by separate bilateral agreements). Any transaction explicitly prohibited under FEMA.
The permitted list is broad enough that most personal international financial needs fall within it. If you're paying for a child's university fees in the US, investing in American stocks, or buying property in Dubai, LRS is the legal pathway.
LRS Annual Limit and How It Is Calculated
The LRS limit is USD 250,000 per individual per financial year. The financial year in India runs from 1 April to 31 March. Here's how it works in practice:
The limit is aggregate. If you send USD 100,000 for your child's education in June and USD 50,000 to invest in US stocks in October, you've used USD 150,000 of your USD 250,000 allowance. You have USD 100,000 remaining for the rest of that financial year.
Each family member gets their own limit. A family of four has a combined theoretical allowance of USD 1,000,000 per year. A parent can't transfer their unused allowance to another person, but a minor can remit through a guardian using the minor's own LRS limit.
The limit resets every 1 April. Unused allowance doesn't carry over to the next year. There's no rollover, no accumulation, and no penalty for not using it.
The limit is denominated in USD, but the actual remittance can be in any freely convertible foreign currency: GBP, EUR, AUD, CAD, JPY, and others. The equivalent USD value at the time of remittance is what counts against your limit.
Tax Collected at Source (TCS) Under LRS
This is the section most people search for. TCS under LRS isn't a separate tax. It's an advanced tax collection mechanism. Your bank collects TCS when you remit, and you claim it as a credit against your income tax liability when you file your return. You don't lose this money; you get it back as a tax offset.
| Purpose |
Up to threshold |
Above threshold |
| Education (funded by a loan) |
Nil |
0.5% above the threshold |
| Education (self-funded) |
Nil |
5% above the threshold |
| Medical treatment |
Nil |
5% above the threshold |
| All other purposes (travel, investment, property, gifts) |
Nil |
20% above the threshold |
The threshold below which TCS doesn't apply is currently set at a specific amount per financial year. Verify the exact threshold with your bank or from the latest Finance Act, as it has changed in recent budgets.
Two things most guides don't explain clearly:
TCS is refundable. If your total TCS collected exceeds your actual income tax liability for the year, the excess is refunded when you file your ITR. It's not a cost; it's a prepayment.
TCS applies per remittance type. Education funded by a loan attracts a much lower TCS rate (0.5%) than investment remittances (20%). If you're remitting for multiple purposes, ensure your bank categorises each remittance correctly under the right purpose code.
Consult a qualified chartered accountant or tax adviser for your specific situation. TCS rates and thresholds change with each Union Budget, and the interaction with your personal tax position depends on your individual circumstances.
How to Remit Under LRS: Process and Documents Required
The remittance process goes through your bank (called an "authorised dealer" in RBI terminology). You can't remit directly; the bank processes the foreign exchange transaction on your behalf.
- Visit your bank or use their online banking platform. Not all banks offer LRS remittance online. Larger banks (SBI, HDFC, ICICI, Axis) typically support it digitally. Smaller banks may require a branch visit.
- Complete Form A2. This is the RBI-mandated application form for outward remittance. It declares the purpose, amount, beneficiary details, and your PAN number. Your bank provides the form.
- Provide your PAN card. PAN is mandatory for all LRS remittances, regardless of amount. No PAN, no remittance.
- Submit purpose-specific documents.
- Education: an admission letter from the foreign institution plus a fee invoice.
- Medical: a recommendation letter from an Indian hospital or doctor.
- Investment: No additional document beyond Form A2 for most banks, but some require a declaration of the investment type.
- Bank processes the remittance. The bank converts your INR to the foreign currency at their exchange rate, deducts any applicable TCS, and initiates the SWIFT transfer. Funds typically arrive in 1 to 3 business days. For the difference between wire and ACH, see ACH vs wire transfer explained.
LRS and Grey: Using Your Foreign Account
There's a distinction that matters for Indian freelancers and remote workers: LRS governs outward remittance from India. It doesn't apply to foreign income you earn from international clients.
If you're a freelancer in India receiving USD payments from a US client, that income is credited directly to your foreign account. It isn't an LRS transaction because the money never leaves India as a remittance. You can open a Grey foreign account to hold USD, GBP, or EUR from international clients, spend with a virtual card, and convert to INR on your terms.
LRS becomes relevant if you want to send money out of India for investment, education, or other purposes. But receiving foreign income? That's a different regulatory pathway entirely. See Grey for Indian freelancers and how to complete a W-8BEN for US clients for more on the receiving side.
Frequently Asked Questions
What is the LRS limit for 2026?
The LRS limit is USD 250,000 per individual per financial year (April 2025 to March 2026). This is aggregate across all purposes and all remittances. Verify the current limit from the latest RBI circular, as the limit can change with policy updates.
Is TCS refundable under LRS?
Yes. TCS collected on your LRS remittances is a credit against your income tax liability. When you file your income tax return (ITR), the TCS amount is deducted from your total tax payable. If the TCS exceeds your tax liability, the excess is refunded to you. It's a prepayment of tax, not an additional tax.
Can I use LRS to invest in US stocks?
Yes. Investment in foreign securities, including US stocks, bonds, and mutual funds, is a permitted purpose under LRS. You can invest up to USD 250,000 per financial year through this route. The 20% TCS rate applies to investment remittances above the threshold. Many Indian investors use LRS to invest via platforms such as Vested and INDmoney, or directly through international brokerages.
Does LRS apply to NRIs?
No. LRS applies only to resident individuals in India. NRIs have different foreign exchange provisions under the Foreign Exchange Management Act (FEMA). If you're an NRI, your ability to remit funds from India depends on the type of account you hold (NRE, NRO) and the specific FEMA rules for non-residents.
What is Form A2 under LRS?
Form A2 is the RBI-mandated application form for outward remittance under LRS. It captures the remitter's details, PAN number, purpose of remittance, beneficiary information, and the amount. You fill it out at your bank (authorised dealer) when initiating an LRS remittance. Most large banks also offer digital Form A2 submission through their online banking or app.
Can a minor remit under LRS?
Yes. A minor can remit under LRS through their natural guardian or court-appointed guardian. The remittance uses the minor's own LRS limit (USD 250,000 per financial year), not the guardian's. The guardian signs the Form A2 on behalf of the minor and provides the minor's PAN card or the guardian's PAN if the minor doesn't have one.
Open a Grey account to receive your international income in USD, GBP, or EUR, separate from your LRS remittance allowance.
Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. LRS limits, TCS rates, and RBI regulations change periodically. All figures cited must be verified against the current RBI master circular on LRS and the latest Finance Act before acting on them. Consult a qualified chartered accountant or tax adviser for your individual situation. Grey is not a bank. Grey is a licensed financial services provider offering multi-currency accounts.
.svg){kind=small}
