Liberalized Remittance Scheme

2023 MAY 20

Preliminary   > Economic Development   >   Indian Economy and Issues   >   Government Schemes

Why in news?

  • Recently, the Finance Ministry of India, in consultation with the Reserve Bank of India (RBI), has made significant amendments to the Foreign Exchange Management Act (FEMA), bringing international credit card spending outside India under the Liberalised Remittance Scheme (LRS).
  • This comes in the backdrop of a surge in spending in overseas travel. Indians spent 12.51 billion USD on overseas travel between April-February of fiscal 2022-23, a rise of 104% compared to the same period of the last year.
  • The inclusion enables the levy of the higher rate of Tax Collected at Source (TCS) as announced in the Budget for 2022-23 effective from 1stJuly 2023.

About Liberalized Remittance Scheme:

  • Liberalized Remittance Scheme is the scheme of the Reserve Bank of India.
  • Under the scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year for any permissible current or capital account transaction or a combination of both.
  • The Scheme is not available to corporations, partnership firms, Hindu Undivided Family (HUF), Trusts etc.
  • Though there are no restrictions on the frequency of remittances under LRS, once a remittance is made for an amount up to USD 2,50,000 during the financial year, a resident individual would not be eligible to make any further remittances under this scheme.

Remitted Money can be used for:

  • Expenses related to travelling (private or for business), medical treatment, study, gifts and donations, maintenance of close relatives and so on.
  • Investment in shares, debt instruments, and buy immovable properties in the overseas market.
  • Individuals can also open, maintain and hold foreign currency accounts with banks outside India for carrying out transactions permitted under the scheme.

Prohibited Transactions:

  • Any purpose specifically prohibited under Schedule-I (like the purchase of lottery tickets, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000.
  • Trading in foreign exchange abroad.
  • Capital account remittances, directly or indirectly, to countries identified by the Financial Action Task Force (FATF) as “non- cooperative countries and territories”, from time to time.
  • Remittances directly or indirectly to those individuals and entities identified as posing a significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.

Add ons:

  • It is mandatory for the resident individual to provide his/her Permanent Account Number (PAN) for all transactions under LRS made through Authorized Persons.


With reference to ‘Liberalised Remittance Scheme’ of RBI, consider the following statements:

1. Under the scheme, resident individuals, are allowed to remit up to USD 2,50,000 per financial year for any permissible current or capital account transaction

2. The scheme is not available to corporations

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2