How to navigate the Liberalised Remittance Scheme: Step-by-step guide

In 2022-23, Indians sent a staggering $24.6 billion abroad, nearly doubling the previous year's figure.

The process of sending money overseas from India has transformed dramatically. Two decades ago, strict regulations made international transfers both complex and restricted. The Liberalised Remittance Scheme changed everything. Now, you can transfer up to $250,000 abroad each year for multiple purposes.

Many people are still confused by the remittance process. They wonder about required documents, permitted transactions, and tax compliance rules.

This article comprehensively explains the Liberalised Remittance Scheme. You'll discover its limits, allowed transactions, and documentation needs. We'll also show you the quickest way to send money abroad while staying within legal boundaries.

Let's explore the essential aspects of making international transfers under LRS.

Understanding the basics of LRS

The Reserve Bank of India made a fundamental change in its foreign exchange policy by introducing the Liberalised Remittance Scheme (LRS) in 2004. This scheme makes it easier to transfer funds abroad while staying compliant with regulations.

What is a Liberalised Remittance Scheme?

LRS stands as a foreign exchange policy that makes your international money transfers simpler. Your savings account lets you send money abroad for many purposes. The scheme allows payments for:

• International education and medical expenses
• Overseas investments
• Foreign travel
• Supporting family members abroad
• Property purchase overseas

Current LRS limits and restrictions

The scheme allows transfers of up to USD 250,000 each financial year (April-March) for permitted transactions. This limit covers all your overseas spending, including:

• Foreign currency purchases
• International debit card expenses
• Forex card loading
• Payments to overseas tour operators

Who can use LRS?

All resident individuals in India can use this scheme, including minors. The scheme excludes:

• Corporations
• Partnership firms
• Hindu Undivided Family (HUF)
• Trusts

To use the scheme, you need three basic documents: an Indian bank account, a valid Permanent Account Number (PAN), and a passport. Parents or guardians must handle the remittance process for minors.

The scheme offers flexibility but restricts certain activities. You cannot use these funds for margin trading, lottery tickets, or trading in foreign exchange abroad.

Permitted transactions under LRS

The Liberalised Remittance Scheme lets you send money abroad for multiple purposes. You should know what you can and cannot do with this scheme.

Current account transactions

Your daily international transactions belong to this category. The LRS allows you to use funds for:

• Private visits abroad (except Nepal and Bhutan)
• Overseas business trips
• Medical treatment in foreign countries
• Education expenses outside India
• Supporting close relatives abroad
• Gifts or donations to NRIs/PIOs who are close relatives

Capital account transactions

These transactions help you create assets and investments abroad. The LRS enables you to:

• Open foreign currency accounts with overseas banks
• Purchase property abroad
• Invest in international shares and mutual funds
• Set up wholly owned subsidiaries or joint ventures
• Extend rupee loans to NRI relatives as defined in the Companies Act

Restricted activities

The RBI clearly specifies activities not permitted under LRS. The scheme cannot be used to:

• Margin trading or lottery purchases
• Buy Foreign Currency Convertible Bonds from Indian companies in overseas markets
• Trade in foreign exchange abroad
• Send money to individuals or entities identified as terrorism risks
• Make remittances to countries marked as 'non-cooperative' by the Financial Action Task Force

Your annual limit of USD 250,000 applies to all permitted current and capital account transactions combined.

Documentation requirements

Documentation plays a significant role in smoothing outward remittances from India. You should be aware of the paperwork requirements under the Liberalised Remittance Scheme.

Essential documents checklist

Your bank needs these core documents to process your remittance:

• PAN card (mandatory for all LRS transactions)
• Form A2 with complete transaction details
• Valid passport (for specific transactions like travel)
• Bank statements or income tax returns (for transactions above USD 25,000)

Bank-specific requirements

Banks may ask for many more documents based on your remittance purpose. Education-related transfers need:

• Admission letter from the institution
• Course fee estimates
• Accommodation arrangements proof

Business travel or medical treatment requires supporting documents like invoices, medical estimates, or travel itineraries.

Common documentation errors to avoid

These frequent mistakes can delay your remittance:

1. Name mismatch: Your name should appear exactly the same on all documents. A name mismatch declaration with supporting proof becomes necessary if differences exist.
2. Incomplete forms: All sections of Form A2 need proper filling. Rejections happen often due to missing information.
3. Outdated documents: Bank statements and supporting documents should be current. Banks typically accept documents dated within the last three months.
4. Wrong purpose code: The purpose code must match your remittance reason. Processing delays occur with incorrect codes.

Keep copies of all submitted documents handy. Your bank might verify details even after completing the transfer. Transactions requiring Form 15CA/CB need the correct version based on the remittance amount and purpose.

Step-by-step remittance process

Sending money abroad is simpler than you might think. Here's a practical guide to transferring money internationally under the Liberalised Remittance Scheme.

Choosing the right remittance method

You can send money overseas through several channels:

• Bank transfers: Most secure but might have higher fees
• Forex dealers: Often offer better exchange rates
• Online platforms: Quick processing with digital documentation
• Payment platforms: Convenient for smaller amounts

The best way to start is by comparing transaction charges and exchange rates between providers. Some providers charge flat rates, while others take a percentage of your transfer amount.

Filing Form A2

Form A2 serves as your main declaration document. Complete it accurately with these steps:

1. Fill in your personal details, including name, address, and PAN number
2. Specify the foreign currency and amount
3. State the purpose of the transfer clearly
4. Provide beneficiary details, including bank information
5. Declare previous remittances in the current financial year

Important: Your name should match exactly across all documents to avoid delays.

Processing timeframes and tracking

Different transfer methods take varying amounts of time. Traditional bank transfers take 2-5 days, while online platforms might process transfers faster.

The latest changes in tax collection at source (TCS) have introduced new requirements. Since October 2023, transfers above ₹7 lakh have faced a 20% TCS. Banks now seamlessly integrate with RBI's Centralised Information Management System to track LRS limits with up-to-the-minute data analysis.

Service providers will send a reference number through email or SMS when they begin processing your transfer. This number helps you track your remittance status.

Double-check all details before submitting your request. Even small errors in documentation can cause delays or rejection.

Small financial savings lead to big wins for your business!

• Collect from 130+ countries.
• Local USD, GBP, CAD, EUR accounts.
• Free FIRA

Sign up now

In a nutshell

International transfers through LRS may appear complex initially. The process becomes easier when you break it down into simple steps. A successful remittance relies on your understanding of scheme limits, permitted transactions, and proper documentation.

Here's what you need to know about overseas transfers: The annual limit stands at $250,000. You should collect all necessary documents before you begin. Your Form A2 details need thorough verification. The new 20% TCS rule applies to transfers above ₹7 lakh and affects your total costs.

You can avoid common pitfalls in the remittance process with proper planning and documentation. Track your yearly remittance total carefully. Store copies of all submitted documents and follow the latest RBI guidelines to ensure smooth international transfers.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. The Liberalised Remittance Scheme (LRS) and tax regulations may change. Always consult with a qualified financial advisor and stay updated with the latest RBI guidelines before making international remittances or financial decisions.

Contributed by Denila Lobo

Denila is a content writer at Winvesta. She crafts clear, concise content on international payments, helping freelancers and businesses easily navigate global financial solutions.